Is Your Contract Fun?

Katherine Milkman, an associate professor at Wharton, University of Pennsylvania, starts her behavioural economics class with the following video.

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Having watched this you may be wondering what this has to do with PBC? Let me explain.

If you agree with my definition of a PBC you will notice that fundamentally a PBC is simply a behavioural economics situation where we try to nudge contractor behaviour to deliver the buyer’s outcome through applying range of complementary rewards and sanctions.

Those familiar with Thaler and Sunstein’s concept of nudging may disagree with my analogy since it is typically used in a social engineering context (e.g. influencing the uptake of health insurance) and typically applied with a lighter touch. However, I would argue that the intent is same.  By using a range of complementary rewards and sanctions within a PBC creates a Choice Architecture that guides and disables contractor choice rather than direct legal consequences of a conventional contract such as contractual breach.

I accept that this type of nudge is more direct than Thaler and Sunstein probably envisioned, perhaps we can call it a “heavy nudge”, but again I think the intent is same.  Moreover, I believe those of us involved in developing PBCs should strive to deliver a Performance Management Framework that allows a contractor to self-regulate their behaviour by defining the consequences of their actions or omissions.

So while some may not consider your PBC fun in the traditional sense, I believe that highly successful PBCs should skilfully use a contract’s Choice Architecture to nudge the delivery of the required outcomes.

This entry was posted in Behaviours, Definition, the Why and tagged , , , , , , , , , , . Bookmark the permalink.

2 Responses to Is Your Contract Fun?

  1. Pingback: Nudging Performance | The Performance Based Contracting (PBC) Blog

  2. Pingback: History of Behavioural Economics | The Performance Based Contracting (PBC) Blog

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