Nudge, Nudge Not Wink, Wink?

Moneta Training
Aug 11, 2020
7 min read

Conduct Risk Training and Behavioural Economics:

Lessons from a lifetime in the classroom

In this short note I would like share some of “the fruits” of my 30 years in the classroom (real and virtual) delivering training courses on compliance topics. In particular, I would like to examine the increased focus on behavioural pyschology and the enhanced role of the individual in good compliance outcomes.

Keep it real – focus on behaviours

I have always believed that powerful and thought provoking scenarios are at the heart of any good training session. This is truer now than it ever was.

The transition of behavioural economics from quirky sideshow into the mainstream of thinking has brought with it a much greater focus on individuals' decision-making processes. This now sits at the heart of more engaging and effective training programmes.

Key to this approach is looking at our cognitive processes; how we think, and how we rationalise our way through so many of the decisions that we take every day.

I regularly used to talk about the Warren Buffett “sniff test” – how would you feel if your actions were accurately reported in the local paper where your parents live or lived? However, these tended to be slightly ad-hoc and almost incidental to the main drive of the course.

What we are now seeing is a much more formal use of behavioural economics in compliance training programmes.

Where to start?

The range of literature available can seem daunting, and indeed some of it is. However, there are some key works which can be used to relatively quickly give delegates “ins” into what is important.

While Kahneman’s “Thinking fast and slow” provides fascinating insights into the way in which our minds work, it is perhaps a little too general for our needs in this space.

Thaler and Sunstein’s “Nudge” and in particular Dan Ariely’s “The Honest Truth about Dishonesty” are much more immediate, and were game changers for me.

In the “Honest Truth …”, Ariely uses a simple honesty test to highlight our capacity to rationalise small acts of dishonesty. Too often in the past when using the regulators enforcements as the basis of a course the delegates would simply say “that’s not me, I wouldn’t do that”. However, by focussing on the earlier steps that took individual into an act of misconduct, and the rationalisations that they used to justify their actions, it begins to speak to the delegates much more powerfully. Moving them from “That’s not me ...” to “That could be me … I could do that”.

At the heart of Ariely’s work are the rationalisations we employ to allow us to take decisions we know are wrong. Which one of us hasn’t used one of these, possibly in the last week?

“Everyone does it”

“That’s not my responsibility”

“If the rules are wrong….~

“It doesn’t hurt anyone”

These rationalisations, and so many more, lie at the heart of almost every regulatory enforcement you will ever see. They are the stepping stones that take ordinary people, like you and me, into sometimes quite extraordinary places.

For me the most powerful thing Ariely’s research shows is that, using a sample of over 30,000 people, there are relatively few bad apples out there (in fact only 12 complete rogues); and wrong doing is generally done by good people who when placed in a challenging situation make the wrong choice (over 18,000 of the sample). In my experience delegates find this fascinating, once you have their attention then the real fun begins.

The benefit of subtler more nuanced training is that it allows them to think, “That could be me, I could make that decision”. Once you have done that then they are far more receptive to the key messages of more modern conduct training.

Dan Ariely, has also produced a movie/documentary on (Dis)Honesty which contains some useful vignettes of ordinary people making poor decisions. For me the most useful is the section is on an insider dealing ring in the US. In that portion of the film we look at the “baby steps” they took, which then made the final crime so much easier. By showing people these steps, it becomes so much easier for them to identify with the difficult choices and to engage with their own choices.

Scenarios, scenarios, scenarios …

As mentioned above, I and my colleagues, have for a long time believed that the key to effective conduct training programmes are realistic scenarios which force the delegates to question their actions and the potential consequences of those actions. When well written they should create that moment of doubt, like a good quiz question, where you can see there might be alternatives, and you are not always sure which path to take.

To be effective these scenarios need to be as true to life as possible. Ideally at least some of them will come from events that the firm has experienced, because that gives you the perfect payoff of “This actually happened here three months ago”. There also needs to be some degree of “greyness” in the situation which provokes the delegates to think what would they really do, and perhaps a series of what ifs that then branch off from the first choice.

In the quest for “connection”, or “buy in”, we have sometimes, in more advanced courses, filmed the scenarios using actors in the offices of the client to add an additional layer of realism.

On a practical, and less expensive, teaching note, I have found that in the early phases of the scenarios polling technology (either dedicated keypads or smartphone-based apps) is a really powerful way of grabbing the audience’s attention. By posing a simple multiple-choice question you can kick off what then becomes a more powerful and wide-ranging discussion.

Once they have pressed a button it miraculously seems to break down that invisible barrier which sometimes exists in the classroom between the trainer and the room. It is certainly my experience that the delegates then become much more prepared to share their thoughts on the follow up questions.

For this to be most effective I have found that it is best if the voting is anonymous. However, even with this anonymity you are able to gather aggregate data on risk appetite.

Frequently while there is often no absolutely correct option, because a variety of paths may be valid, there is generally a fairly obviously wrong path. Again this can frequently provide starting point for a discussion without ever seeking to embarrass the individuals who selected that option.

From the trainer’s point of view this approach is more challenging, since you no longer control the floor, but it does mean that no two sessions are ever the same and the learning is enhanced.

From these basic scenarios you can then branch, like a decision tree into different pathways and examine the challenges that we might face, the “what ifs” I talked about above.

How do we help people counter the rationalisations?

Ariely’s work also holds some really useful insights into how we can help to change the way people think. In particular he has demonstrated how values and reminders can be quite powerful at creating that pause between “can” and “do” into which the word “should” can prompt us to question the path we have taken.

This all comes back to Behavioural Economics. We all like to think that we are in charge of what we do, that we control our decisions, the truth is somewhat different. We are, as a species, very easily manipulated and it is possible to force us down particular pathways.

Ariely’s earlier work “Predictably Irrational” provides some fascinating insights into the ways in which consumers can be manipulated, and again helps delegates to think about the choices that they are making.

Alongside the values the role of the leadership team is unsurprisingly crucial.

The role of the management team

At the heart of any effective compliance training programme is the engagement from the senior management team. Without this there is a hollowness at the heart of the course, that is there for all to see.

The most powerful courses I have delivered in my career have come with the real engagement of the leadership team. In practice this is obviously quite difficult, they simply can’t physically come to every session. However, a video from the CEO or a montage of the senior leaders can be very effective as a way of kick starting the programme.

The physical presence of a manager or team leader in the room can also be very helpful. In some cases they have co-facilitated the course with me or more simply they can close the course with a few words and ideally an example from their own working lives.

Most of all what it demonstrates is that the management is committed to what we are saying. Without that the training can just look like “box ticking”.

Central to managing Conduct Risk is an escalation culture. With management groups I tend to focus on their role in making this happen. We need to give people the courage to raise their concerns. Escalation requires bravery: how do we, in the way we run our teams, give people that courage? Here once again the use of real-life examples is absolutely vital in creating the right atmosphere.

When regulators are visiting firms they are now calling people in from across the business. What are they asking?

"Who would you take an issue to?"

"Have you ever raised an issue?"

"What happened when you did?"

"Do you use examples of events that have gone wrong in your briefings?"

"Do you also unpack events that have gone well?"

How would your team answer those questions?

This approach is telling the regulators more about a firm’s real culture than any number of management presentations will ever do. Consequently, it has never been more important to get this right.

Closing thoughts

Clearly there is more to it than just this. As a trainer you always need to bring energy and enthusiasm to the room, I think we all know this material doesn’t just teach itself.

But to borrow from Benjamin Franklin:

“Tell me and I forget, teach me and I may remember, involve me and I learn”.

It is as true now as it was then.