Before becoming dean of Warwick Business School, Prof Mark Taylor was managing
director of Black Rock, the world’s largest asset manager.
It was a dramatic time to be involved in high finance. Stock markets fell
around the globe, financial institutions were threatened with collapse,
banks had to be bailed out by governments, unemployment mushroomed, and the
global recession was the result.
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Like many thoughtful financiers, Prof Taylor was left feeling that traditional
finance or economics alone could not explain the crisis.
“It was as much about the psychology and sociology of markets as it was about
finance,” he says. “I worked for a quantitative investment fund, where we
built models and thought we understood how markets behaved. Those broke down
completely. We have to think about the psychology that lay behind the
crisis.”
So when he arrived at Warwick, he decided to transform the MBA there to
reflect the complex world in which we live. A review was established and in
autumn 2013 changes were introduced. This year’s MBA students are guinea
pigs for a new, arguably controversial, MBA programme that puts behavioural
science at its core.
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Warwick Business School is blazing a trail. Traditionally, business schools
have emphasised things that can be measured. As a result, MBA curricula have
mirrored the fashion for rationality and number-crunching that has been the
hallmark of business education for decades. Warwick’s embrace of the
touchy-feely discipline of behavioural science is definitely a challenge to
conventional economic and business thinking.
Its course looks at how people actually make decisions and behave rather than
how they think they decide and behave. In other words, it focuses on the
unconscious biases and habits that are such powerful motivators for
behaviour.
“It’s about trying to think outside the box,” says Prof Taylor. “This is what
has been missing in contemporary business education.”
The old subjects of accounting, finance, strategy and organisational behaviour
have been retained but are now all studied from a behavioural science point
of view. “Strategy will be taught but we will also look at how a strategic
plan emerges; in other words, we ask what is the psychology behind it,” he
adds.
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The real brain behind Warwick’s big new idea is Prof Nick Chater, who runs the
business school’s Behavioural Science group, the largest such research group
in Europe. He is an adviser to the coalition government’s Behavioural
Insights Team, often referred to as “the Nudge Unit”, which is trying to
change the way people behave by nudging them in the right direction. For
example, it is using psychology to try to persuade people to donate their
organs or pay their taxes on time.
The Unit has undertaken some experiments, with positive results. One, which
was carried out locally, was to change the letter sent to those who were
late in paying their income tax. On the advice of the Nudge Unit, HM Revenue
and Customs tested a new style of reminder letter that told laggards how
many people living in their area had already paid.
It turned out that most had. Unwilling to be seen as deviant, the late payers
paid up, and rates of repayment rose by around 15 per cent. If this was
repeated on a national scale, it would generate around £30 million of extra
revenue from savings in the cost of tax collection.
The argument is that managers need to get smart with people. Appealing to
their reason is not enough — we need to understand what makes them tick.
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“Traditional thinking has been that businesses and consumers are rational
economic agents who make decisions knowing all the facts. The new thinking
understands that decisions made inside businesses and by consumers are
extremely capricious and often based on precious little information and
dubious intuitions,” explains Prof Chater. “The reality is that the economic
and business world consists of people with limited time and information and
the ability to reason effectively.”
Although businesses will try to produce elaborate cases for why they should
introduce a new product line or service, or make a price cut, their
decisions are based on extraordinarily little information, according to Prof
Chater. Even if they had more, they would be guessing about the future
impact of their decision-making.
Warwick’s new MBA aims to give students the basic skills that they would learn
on any MBA course but to place them in a wider human context. “We are trying
to get them to think in a much more flexible and open-ended way,” adds Prof
Chater. “You can’t solve business problems with rigorous calculations. You
need to have creative insights.”
American business schools, such as Chicago Booth and Harvard, have also
adopted the behavioural approach in their MBAs, and the White House under
President Obama has embraced the same philosophy. Will Warwick set a new
trend in British business schools?