Behavioural economics – part one
Technique #1: Loss aversion
A human’s desire to avoid loss is more powerful than their desire to realise a gain.
Employers can take advantage of this by showing their employees the potential risk of failing to act. When it comes to their pension contributions and benefit selections, showing what can be lost rather than gained can trigger a greater response from employees. They typically prefer to stop the loss from happening.
Employers can detail a figure that a member may lose out on at retirement if they don’t maximise the employer’s contribution.
Here’s a pension example:
Jack, you’re going to lose out on £45,000 at retirement!
You’re losing a 5% employer pension contribution because you are not paying an additional 1%. You are losing that every year. All you have to do is log in here [hyperlink] and edit your contribution rates to avoid missing out on all this money!
Similarly, when working on a benefits campaign, employers can show employees what they will lose by not re-selecting a benefit, or not selecting a benefit in the first place. This message can outweigh the effect of only boasting about its perks.
Here’s a re-selection benefits example:
Jim, you’re about to lose £500 to put towards your healthcare!
The Healthcare Cash Plan benefit you selected is about to expire. To avoid losing £500 towards this year’s eye tests, dental bills, glasses and more, make sure you re-select this benefit before 31 January! You can click here [hyperlink] to ensure you don’t lose this free cash!
It’s important not to try and scare employees or pension members. The aim is to emphasise a negative result that might occur if actions aren’t taken (think “once it’s gone, it’s gone!” type of messaging). Something too daunting or complex can cause worry and ultimately deter any action.
Next week, we talk about technique two - peer influence and injunctive social norms.