Behavioral Economics

The work of Daniel Kahneman and Amos Tversky has demonstrated that when people decide between risky options they often choose differently than the idealized “rational” person.

This may be a consequence of the following behavioral elements:

  • A tendency to simplify and quicken the decision-making process using heuristics
  • Impacts of unconscious biases on perceptions of probabilities
  • Incorrect framing of a decision

A lot of work has been done to incorporate these behavioral elements into economics, public programs, finance, strategy, etc. We are incorporating these behavioral elements into the Business Fit Framework. We utilize a framework to help teams think through the various areas of risk in a product development project to provide consistency in the identification and evaluation of risks.

The project team often finds itself evaluating uncertainty and risk based on their experience, without any reliable data or information. This introduces bias because rare events can be completely missed, or else recent events may take on too much importance. Proven methods to compensate for such biases, including Reference Class Forecasting and Nudges, is integrated into the Business Fit Framework tool.