Exploiting Human Nature
Exploiting human nature and psychological tricks is an aspect of governance that deserves more coverage. When we first bought a company in Peru, we were surprised to discover that, to calculate an employee’s annual pay, we needed to multiply their monthly salaries by 14 and not 12. Twice a year, our Peruvian employees were given a “bonus” month of salary all at once. In addition, a portion of Peruvian employees’ salaries also goes to a retirement fund and an unemployment fund (which only belongs to them). The unemployment is released when their job is terminated. This gives people a financial runway, protecting them in the event of unexpected layoffs.
By creating simple systems that ensure Peruvian employees get cash windfalls, unemployment savings, and retirement funds, without taking proactive action, the Peruvian government has ensured its population acts with greater fiscal responsibility than it otherwise would. This does not affect us as a company; we pay employees the same yearly amount we would be paying them annually without these systems in place. Essentially, the government is able to give its citizens some of the benefits or a more socialized system without the waste.
Defaults are powerful. Making organ donation a default on driver’s licenses can increase rates of organ donation by as much as 80% in some areas.
While plenty of governments and organizations intelligently use “nudges” and defaults to their advantage, some well-attested psychological tricks remain highly underrated and underutilized. Consider the body of research indicating that people act more ethically when they think someone is looking at them or even see a set of eyes painted on something. For example, one group of subjects was found to put more money in a charity box if the box had a set of eyes painted on it. We always suspected something interesting could be done with this information.
How might you implement these tricks? Suppose you are setting up a family office that will send payments to your grandkids. When kids within the family are under 15 years old, it might make sense to send monthly payments in the form of an allowance and issue a larger amount twice a year that must be received in the form of an investment chosen by each child. While not perfect, this distribution method would likely inspire interest in and thought about investing at a younger age.