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Safety and Behavioral Economics

Making choices and decisions in the workplace


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A discussion on the economics of safety could go many ways. One could, for example, discuss the enormous financial and societal costs of occupational injuries and illnesses in the United States. According to J. Paul Leigh, in his work on the “Economic Burden of Occupational Injury and Illness in the United States” published in The Milbank Quarterly in 2011, approximately $250 billion is spent on occupational injuries and illnesses in the United States annually. This study is, arguably, one of the most comprehensive available on the subject as it is difficult to get accurate metrics on the counts, occurrences, and money spent by industry on occupational injuries. The thing is, occupational injuries are often times underreported to the Occupational Safety and Health Administration, either maliciously through purposeful omission or through human error. Occupational illnesses are notoriously underreported to both industry and the Occupational Safety and Health Administration because in some cases extensive lag periods between exposure and occurrence of disease makes a link back to occupational exposure difficult.

Leigh’s work is one of the most inclusive and takes into consideration at least nine factors, including cost of medical services, Bureau of Labor Statistics, workers’ compensation claims, cost of injuries, cost of fatal injuries, and sensitivity analysis, to name a few. His data reveals that of the $250 billion spent annually, about $191 billion is spent on injuries and about $57 billion is spent on illnesses. For injuries, about $46 billion is spent on direct medical costs and $145 billion is spent on indirect costs for injuries. For illnesses, about $20.83 billion is spent on direct medical costs and $37 billion on indirect costs. Direct medical costs are those associated with the medical care such as ER visits, occupational health, clinic costs, and outpatient care associated with medical care. The indirect costs include lost production, wage loss, replacement costs, insurance premiums, turnover costs, and loss of primary wages for the injured personnel. This $250 billion is higher than the GDP of 151 out of 194 nations on the planet. It’s a big number and certainly worthy of discussion, but it is not today’s topic. The economics that I am thinking of involve choice.

 

Behavioral Economics

There are a few ideas related to behavioral economics relating to safety management. The typical behavioral economic analysis will investigate humans as they make choices related to consumer purchases or their experience in games to investigate what factors influence decisions. The role of behavioral economics in safety is new; however, these techniques are now being utilized at the government level in many countries including the United States and the UK where behavioral economics are being used to influence (i.e., nudge) personal choices related to healthy behavior.

Economics, in and of itself, is a social science that attempts to understand human behavior through analysis and study of how we use scarce resources (classical model), and specifically how we engage at a personal level (behavioral economics) with the choices that we are confronted with. Since economics remains a science, models are presented that attempt to explain human behavior, and these models are testable. Models in the classical economic science do a good job describing big ideas (economies, markets, etc.) but lose some explanatory power when confronting personal choices. Behavioral economics picks up at this point and tests people’s reactions when confronted with choice. Again, this is still a social science so these tests are repeated, resulting in a body of knowledge in this developing field.

According to Hugh Schwartz’s book, “A Guide To Behavioral Economics,” behavioral economics “endeavors to provide descriptively accurate assumptions about the cognitive abilities and emotional responses of humans in their economic decision making,” which includes factors such as antecedents, consequences, incentives, social norms, emotional states, biases, and a host of other human inspirations (my inclusion). In other words, behavioral economics is the study and science of how people choose and make decisions.

I cannot think of a better way to describe what I do, or the profession of safety, as other than the study of, and application of, people’s choices under constraints or scarce resources. Talk about constraints? Safety is often the more expensive option compared to the unsafe choice; it often takes more time; it often involves some additional training or equipment; and, let’s face it, it is not always fun. However, while safety remains a choice in a lot of situations, it is the most likely expectation from the point of view of the company, the government, and even society.

 

Behavioral Economics Examples

“Influence,” “Nudge,” “Predictably Irrational,” “The Power of Habit,” and “The Art of Choosing” are just a few of many popular books examining behavioral economics, or at least some of the techniques. While these books present experiments, they are also full of practical field-tested examples coming from the marketing department with us, and our consumer driven habits, as the lab rats (not necessarily a bad thing). The decoy effect is one example. When presented with two offers, let’s say for mp3 players (see full example in Wikipedia under decoy effect), the A option costs $400 and has thirty gigabytes of memory; option B is $300 for twenty gigabytes of memory. A consumer presented with these options would choose whatever option fit their tastes at the time, either more memory for more money or less memory but at a discount. Behavioral economics has shown that the introduction of a third choice, option C, of twenty-five gigabytes for $450 (the decoy) now boosts sales of option A because of comparison. While option A may have been out of the price range for many consumers initially, when comparing that price to the decoy, they can feel better about their purchase as they spend a little more than they would have without the decoy (it was the original intent of the shop owner to sell more of option A in this example).

Anchoring is another example that has been studied in behavioral economics. In a classic experiment, Dan Ariely asked his audience to write down the last two digits of their social security number. They were then asked to bid on items for which they did not know the true value. According to Ariely, those people who had a larger two digit social security value bid approximately 60 percent to 120 percent higher than those with lower values. Those people bidding higher on the same items were “anchored” in their relative pricing model. Variations of this experiment have been tested by others with similar results. Homo economicus, the traditional hero of classical economics, would never be tempted with this ploy, but it seems the rest of us are at least influenced by an anchor.

I know; I was upset after reading about this for the first time as well. But, I could imagine myself doing the mental calculations related to the mp3 examples and I had to admit to myself that I would go home with option A. However, I also did some calculations and it turned out that option A, at least in the example provided above, is the better option as the price per gigabyte was lower than the other two options (behavioral economists call that the hindsight bias and mine is 20/20).

 

The Use of Behavioral Economics in Safety

Behavioral economics is about humans and choice and, as mentioned previously, humans and choice have a lot of input into workplace safety. I figure, if behavioral economics has enough exploratory and explanatory power in my day-to-day decisions, then there might be some merit in investigating some of the tools on behalf of the safety profession.

The basics of behavioral economics starts out with a few definitions needed to explain the three behavioral economics concepts discussed here: Bounded Rationality, The Availability Heuristic, and Optimism Bias. Heuristics and dual system models of thinking are defined below:

Heuristics: Mental short cuts or rules of thumb that are used in our everyday lives; they are informal rules of our behavior.

Dual System Models of Thinking: System 1—Fast, non-conscious, and automatic thinking used when in a hurry and under some kind of constraint like time pressure (work); System 2—Slow , controlled, and deliberate thinking used when the decision involves important subject matter or when held accountable by others (work or budget planning).

 

Bounded Rationality

The first of three safety relevant behavior economic concepts I would like to share is that of bounded rationality. While this is not necessarily a marketing trick like the previously offered examples, bounded rationality simply states, according to Herbert Simon, that decisions are not always made under optimal conditions and that the environmental influences affect all that we think and do. Humans cannot possibly process all the information available at any given time, especially when being imposed on by the pressures of work. In order to be able to function, a set of workplace heuristics (mental short cuts) are used in order to get the work done and function normally (System 1).

A key concept within bounded rationality is that of limited information and the importance of rapid, if not immediate, feedback. Behaviorists will remind us that in order to influence someone’s behavior, we have to influence either antecedents or consequences—we have a model, the ABC Model: Antecedents, Behaviors, and Consequences. Antecedents are those activities that include training, bias, and signs (Wear Your Gloves!) and are responsible for about 20 percent of the influence on our behavior. Consequences are responsible for the remaining 80 percent of behavior and include both reward and punishment—positive and negative outcomes.

The most influential effect on behavior change are those opportunities to provide positive immediate feedback—the more people do of a thing, the more they get rewarded, and if that reward is immediate, all the better. People start to lose incentive when the behavior gets rewarded only randomly or not at all, and random rewards may lead to extinguishment of the behavior altogether. The second most effective behavior strategy is that of immediate negative feedback. Those who do something wrong, and then get immediately negatively impacted, will most likely voluntarily quit that behavior. However, and similarly to positive reinforcement, if that negative feedback is inconsistently reinforced, than it may persist when nobody is looking; the classic example is what happens when a driver sees a trooper on the highway while speeding.

 

The Availability Heuristic

The second concept is called the availability heuristic and it relates to safety training and pre job meetings. The availability heuristic-concept relates to mental imagery or memory that is easily accessible because of recent reminders of triggers in the environment. For example, personnel may be influenced by what they remember from recent events, or through vicarious experience of others, which will then influence their safe work behaviors. A related concept from behavioral economics is in the priming effect heuristic where words have been shown to influence future performance on a particular task. For example, priming words that are positively framed produce higher expectations and task efforts than do priming words that are negatively framed. While this may not be revolutionary to any given mature safety program, these pre job meetings do matter and a properly conducted meeting would do well to include some availability and priming words in their development and deployment in the field. This works at the “awareness” level and may keep recent events in mind. For example, recent events on the North Slope include some personnel being exposed to nitrogen with subsequent respiratory problems. Getting to the root cause of this event and sharing the lessons learned are essential elements to the availability heuristic.

 

Optimism Bias

A third behavioral economic concept is that of the optimism bias and a similar overconfidence effect. People tend to overestimate their ability or probability of a favorable outcome and underestimate the probability of a negative outcome. This is an especially important concept in safety in that nobody wakes up in the morning and goes to work to get hurt. Our optimism bias works in a way that is probably productive for risk takers, but risk takers are not what we want on our construction sites or oil rigs. Optimism bias tends to get people hurt (e.g., I can lift that without help; I can dig just a little deeper without shoring; I can work around that electricity) because we think that accidents only happen to the other guy. Similarly, the overconfidence effect is in play when people’s self-perceived ability is greater than their actual ability, which may get them into trouble on the worksite. This effect is especially prevalent when work planning is involved.

According to the dual system model mentioned previously, humans work in either the impulsive System 1 or the calculating System 2. Work plans and HSE planning happens in System 2 thinking while carrying out the work probably takes place in System 1 thinking. Overconfidence in one’s ability during System 2 planning could get a person into trouble in the field.

 

Lastly, Confirmation Bias

Behavioral economics is not a new branch of economics as the role of behavior and psychology have been present in the journals for some time now. However, there seems to be an increase in both the production and velocity of behavioral economic topics, books, and presentations as of late, or, of course, I could be suffering from what is called confirmation bias in that I am now seeing this stuff everywhere.

One of the most elegant and easy introductions to the science of Behavioral Economics is “The Behavioral Economics Guide 2015” (Alain Samson, ed.) found at behavioraleconomics.com. This document is incredibly well crafted, offers a history of the science, and is an excellent reference for further study. The 2015 edition has an introduction by Dan Ariely whose popular books include “Predictably Irrational,” “The Upside of Irrationality,” and “The Honest Truth about Dishonesty,” amongst others. 

 

This article first appeared in the December 2015 print edition of Alaska Business Monthly.

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