Behavioral Economics in People Management: A Critical and Integrative Review

Abstract

In recent years, behavioral economics has revolutionized various fields, including finance, marketing, and public policy. Its application in people management, however, remains an emerging area of exploration. By integrating psychological insights into economic decision-making, behavioral economics offers a nuanced understanding of human behavior, essential for designing effective HR practices. While many of the concepts are not new in organizational behavior research and related fields, thanks to the incorporation of formalized models of choice, behavioral economics brings analytical clarity to domains traditionally studied through descriptive or qualitative methods in the behavioral sciences. This review article delves into how behavioral economics can shed light on key aspects of people management, focusing on five domains: incentives, decision-making, leadership, personalization, and organizational change. We offer a critical overview integrating some of the most well-known findings with applicability in these areas as well as promising avenues for future research. One of the main conclusions is that behavioral economics offers a powerful lens to approach people management, but also that behavioral principles need to be understood in depth (beyond average effects, for example) as generalization is often flawed, claiming for personalized solutions and interventions grounded on comprehensive perspectives.