Best Practices From Behavioral Economics: Communicating in Times of Crisis

Behavioral biases in financial decisionmaking should be considered when conveying important plan-related messages to employees.

The ongoing pandemic has created a situation in which people are functioning in a prolonged crisis mode. Every day brings uncertainty and the possibility of more bad news, and we are being impacted on personal, professional, local, national and global levels. We are also bombarded with news and information via email, social media, websites, text messages and more.

How can organizations break through the noise and convey important messages to their employees? The potential consequences of under-communication include confusion, the circulation of rumors and misinformation, or employees jumping to negative conclusions because no other information is being offered. Behavioral economics, which, in essence, is the study of psychology as it relates to the economic decisionmaking processes of individuals and institutions, offers us some guideposts.

The first thing to remember is that every behavioral effect is heightened in a crisis, and the three most powerful drivers of behavior are loss aversion, regret aversion and trust. In addition, it’s important to be mindful of biases. Confirmation bias occurs when people seek out information to confirm beliefs they already hold, and availability bias is the observation that a message repeated enough times is eventually perceived as true. In a crisis environment, these biases will be amplified.

In light of these behavioral drivers and biases, consider your communication goals: What do you want your target audience to take away from the communication, and what do you want them to do/believe as a result? Also, what might your target audience want and need from your organizational communications? Participants could be looking for:

  • a sense of control and safety;
  • a feeling of empathy and acknowledgement; or
  • confirmation that they are receiving reliable information.

Be sure you are mindful of your audience’s perspectives and needs as you prepare your communications. Keep it simple—don’t give them irrelevant or confusing information or piles of data—and stay focused, clear and concise.

Tips for Plan Sponsors

Plan sponsors should avoid plan-related communications that are filled with jargon, have disconnected thoughts and generally provide much more information than is necessary. Compliance issues can be one cause of information overload, but issues can also arise depending on who is writing the content. Participant materials are often developed by highly financially literate people. We know that, behaviorally, highly financially literate people strongly underestimate the complexity of the materials they are tasked with communicating to an unsophisticated audience. Build trust on an ongoing basis with your participants by avoiding complex language and jargon.

Another consideration: As you focus on the “what” and “why” of your messaging, don’t forget the “who.” Think about not only who your audience is, but who might be the best person or entity to deliver the message. Who will create the most trust in the target audience? In corporations, especially during times of crisis, this may not be the CEO. Your audience must feel that the sender’s motivations are aligned with their own. At times, a peer-to-peer communication may be more relatable and resonate more strongly with your recipients.

One specific example speaks to plan sponsors’ concerns about retirement plan participant communications in light of the current environment. The Defined Contribution Institutional Investment Associate (DCIIA) Retirement Research Center has been conducting a series of surveys with Commonwealth to better understand how low- to moderate-income plan participants are handling their retirement savings during the pandemic and the impacts they’re feeling on their financial security. This research has shown that having low levels of liquid savings drives plan participants to take actions that could jeopardize their future retirement security (e.g., pausing contributions, withdrawing from their 401(k)).

The long-term impact of the pandemic on working Americans is largely unknown, but there are actions plan sponsors and recordkeepers can take to help people weather this crisis and use their retirement savings only as a last resort. Recordkeepers should consider providing a liquid emergency savings tool to help participants build a savings buffer that they can draw down and build up without putting their retirement security at risk.

From a communications perspective, plan sponsors can help by reminding employees of pre-existing financial wellness resources, including financial advising from recordkeepers—and recordkeepers can help by supporting those employers in creating messaging about financial wellness tools for employees. This is a critical moment to build on Americans’ propensity to save during COVID-19 and regret for not having built emergency savings earlier—as noted, regret aversion is a key driver of behavior, especially during a crisis.

We hear a great deal about fostering engagement among participants when it comes to retirement savings. (For a great resource that expands on the themes touched on here, see Segal Benz, “Behavioral Economics: Take Engagement From Good to Great.”) However, with today’s prevalence of automated features, does engagement still matter? The answer is yes! In our models, we have found that people who are highly engaged in activities surrounding their retirement account have much higher deferral rates and are much more likely to trust and heed the communications messages from their recordkeeper and employer.


Warren Cormier is executive director of the DCIIA Retirement Research Center (RRC). He has previously served as CEO and co-founder of Boston Research Technologies and as president and founder of Boston Research Group.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.