Share
COVID-19: Could businesses leverage behavioural economics to bounce back?
Most experts believe that behavioural change will be key in a post-COVID-19 recovery for businesses. But where has this worked before and how certain are we it's the direction to take? CNBC Africa spoke to Rahab Kariuki, Director at Busara Center for Economics for more.
Fri, 05 Jun 2020 10:44:25 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Behavioral economics offers insights into understanding irrational decision-making during crises like pandemics, emphasizing the importance of recognizing businesses as collections of individuals.
- Information provision plays a crucial role in influencing behavior, with people tending to overestimate small probabilities during crises, necessitating clear and accurate communication strategies.
- Building trust in health systems and implementing permanent changes over temporary solutions are vital for businesses to navigate the post-pandemic landscape and ensure long-term success.
In the wake of the COVID-19 pandemic, businesses are faced with the challenge of adapting to a new normal and finding innovative ways to thrive in a world that has been forever changed. Many experts believe that behavioral change will be key in the post-COVID-19 recovery for businesses, and leveraging the principles of behavioral economics could be the key to success. CNBC Africa spoke to Rahab Kariuki, Director at Busara Center for Economics, to shed light on how businesses can use behavioral economics to bounce back.
Behavioral economics, which may sound like a new concept to some, is the study of how people make financial decisions, incorporating elements of anthropology, psychology, and marketing. When applied to businesses, it helps understand the irrational decisions individuals and businesses make, especially during times of crisis like pandemics. Kariuki highlights the importance of recognizing that businesses are ultimately made up of people, emphasizing that understanding individual decision-making and behavior is crucial for business success.
One crucial aspect of leveraging behavioral economics in a post-pandemic world is the role of information provision. Kariuki explains that how individuals evaluate risks and options depends largely on the information they receive. Behavioral economics studies show that people tend to overweight small probabilities, leading them to consider infrequent events as having a high likelihood of occurring to them. This phenomenon is particularly relevant during a pandemic, as it can prompt individuals to take necessary precautions to protect themselves. Providing accurate and timely information is essential in influencing behavior and ensuring individuals perceive risks accurately.
Moreover, building trust in health systems is a crucial step towards ensuring that individuals are empowered to make informed decisions. Kariuki emphasizes that changing norms, particularly around trust, is challenging but essential. Actions speak louder than words, and credible role models, such as political leaders and business figures, need to demonstrate desired behaviors, such as wearing masks and practicing good hygiene, to instill confidence in the public. Investing in local markets and businesses can also foster economic empowerment and stimulate recovery, as demonstrated by initiatives like the four-day work week in New Zealand to boost local tourism.
For businesses looking to navigate the post-COVID-19 landscape, it is important to focus on implementing permanent changes rather than temporary solutions. Research shows that while permanent changes may initially lead to a drop in morale, they result in faster rebounds and higher overall recovery rates compared to temporary measures. Communicating effectively with consumers about the permanent strategies in place to reduce risks can help build confidence and encourage adaptation to the new reality. Businesses need to strategize for the long term, focusing on sustainable practices that prioritize consumer safety and well-being.
As the world continues to grapple with the effects of the pandemic, the application of behavioral economics in business recovery offers a promising path forward. By understanding and influencing individual behaviors, businesses can not only survive but thrive in the post-COVID-19 era.
SIGN UP FOR OUR NEWSLETTER
DAILY UPDATE
Get the best of CNBC Africa sent straight to your inbox with breaking business news, insights and updates from experts across the continent.
Get this delivered to your inbox, and more info about about our products and services. By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.