Individual Differences in Emotion and Decision- Making

2007

This paper examines the link between affective experience and decision-making performance. In a stock investment simulation, 101 stock investors rated their feelings on an Internet Web site while making investment decisions each day for 20 consecutive business days. Contrary to the popular belief that feelings are generally bad for decision making, we found that individuals who experienced more intense feelings achieved higher decision-making performance. Moreover, individuals who were better able to identify and distinguish among their current feelings achieved higher decisionmaking performance via their enhanced ability to control the possible biases induced by those feelings. Folk theories abound when it comes to the topic of how feelings affect decision making (Slovic, 2001). Traditionally, emotionality has been portrayed as the opposite of rationality and/or effectiveness in a managerial setting (Ashforth & Humphrey, 1995; Putnam & Mumby, 1993). Organizations have frequently asked their employees and managers to keep their affective experiences at work within a relatively neutral range or to express their feelings only according to narrowly defined organizational rules (Hochschild, 1983; Morris & Feldman, 1996). A similar prescription is popular in the field of finance. Investors are frequently instructed to put their feelings under control, meaning that they need to avoid or suppress strong feelings (Babin & Donovan, 2000). Scientific debate over whether subjective experiences of emotion are functional or maladaptive has been ongoing (Gohm & Clore, 2002). Some argue that feelings are a source of unwanted bias (Shiv, Loewenstein, Bechara, Damasio, & Damasio, 2005; Slovic, Finucane, Peters, & MacGregor, 2002) and thus need to be properly regulated (Gross & John, 2003). Others maintain that feelings play an adaptive role in decision making (Damasio, 1994) and benefit personal well-being (Aspinwall & Taylor, 1997; Fredrickson, 2001). In the present study, we provide evidence that might help to resolve this debate by suggesting that whether affective feelings are functional or dysfunctional for decision making is largely dependent upon how people experience those feelings and what they do about them during decision making. On the basis of a broad perspective on individual differences in affective information processing (Gohm, 2003; Gohm & Clore, 2000), we propose that individuals can experience intense feelings during decision making while simultaneously regulating the possible biases induced by those feelings, both of which may positively contribute to their decision-making performance. We empirically examined the proposed relationships in a stock investment simulation combined with an experience-sampling procedure. This study extends previous research on affect and decision making in three ways. First, it provides direct empirical evidence regarding how feelings influence individuals' decisionmaking performance in a high-fidelity simulation that simultaneously captures the aspects of psychological realism (Berkowitz & Donnerstein, 1982

2011

■ Cognitive strategies typically involved in regulating negative emotions have recently been shown to also be effective with positive emotions associated with monetary rewards. However, it is less clear how these strategies influence behavior, such as preferences expressed during decision-making under risk, and the underlying neural circuitry. That is, can the effective use of emotion regulation strategies during presentation of a reward-conditioned stimulus influence decision-making under risk and neural structures involved in reward processing such as the striatum? To investigate this question, we asked participants to engage in imagery-focused regulation strategies during the presentation of a cue that preceded a financial decision-making phase. During the decision phase, participants then made a choice between a risky and a safe monetary lottery. Participants who successfully used cognitive regulation, as assessed by subjective ratings about perceived success and facility in implementation of strategies, made fewer risky choices in comparison with trials where decisions were made in the absence of cognitive regulation. Additionally, BOLD responses in the striatum were attenuated during decisionmaking as a function of successful emotion regulation. These findings suggest that exerting cognitive control over emotional responses can modulate neural responses associated with reward processing (e.g., striatum) and promote more goal-directed decisionmaking (e.g., less risky choices), illustrating the potential importance of cognitive strategies in curbing risk-seeking behaviors before they become maladaptive (e.g., substance abuse). ■

This paper examines the link between affective experience and decision-making performance. In a stock investment simulation, 101 stock investors rated their feelings on an Internet Web site while making investment decisions each day for 20 consecutive business days. Contrary to the popular belief that feelings are generally bad for decision making, we found that individuals who experienced more intense feelings achieved higher decision-making performance. Moreover, individuals who were better able to identify and distinguish among their current feelings achieved higher decisionmaking performance via their enhanced ability to control the possible biases induced by those feelings.

2016

A good decision making process is expected, and often required, to be free from emotions. It is done in order to ensure that decision-making is objective. There is a strong belief among decision theorists that objective decision making is unbiased and is more likely to produce good results. This paper discusses some possible effects of emotions on decision making. It also discusses an experiment and its outcome, that was conducted to validate or otherwise, the claimed objectively of decision making being free from emotions. The main outcome of the experiment was the finding that decision-makers achieve better performance in decision making if they are able to control the possible biases produced by their feelings.

SSRN Electronic Journal, 2013

We consider the relationship between emotions and decision-making under risk. Specifically, we examine the emotional correlates of risk-averse decisions. In our experiment, individuals' facial expressions are monitored with facereading software, as they are presented with risky lotteries. We then correlate these facial expressions with subsequent decisions in risky choice tasks. We find that the valence of one's emotional state is negatively correlated, and the strength of a number of emotions: fear, happiness, anger, and surprise, is positively correlated, with risk-averse decisions.

Previous studies explored the possibility to use cognitive strategies to bias economic decisions by altering their emotional impact. One emerging question, but yet unsolved, is whether different cognitive strategies impact our decisions in the same or different ways. Another intriguing question is whether these strategies alter our decisions by altering the valence or by affecting the arousal of the emotion associated with the economic exchange. In the present study, we compared the effect of 2 emotion regulation strategies, namely, reappraisal and distancing, and showed that reappraisal is able to increase the valence of the emotions associated with monetary divisions in the dictator game (Experiment 1) and to reduce rejection rates in the ultimatum game (Experiment 2), whereas distancing decreases the arousal of emotions (Experiment 1) but surprisingly increases rejection rates (Experiment 2). Moreover, in the present study, we explored the cognitive effort associated with the usage of regulatory strategies during decision-making, using the galvanic skin response as index, and found an increase in physiological arousal when applying both strategies. These results extend our understanding of how to bias individuals' decisions in a desired direction by using different strategies that alter one aspect or the other of the emotional reaction.

The aim of this study was to assess the role of specific emotions on risk perception providing a more stringent experimental test of the Appraisal Tendencies Framework (ATF). Consistent with expectations, angry and happy participants made more optimistic risk estimates than participants who were made sad. As hypothesized by ATF, happiness and anger also led people to somewhat higher certainty appraisals than sadness. However, this change in perception did not mediate the impact of emotions on risk estimates. Taken together, our results provide the evidence for causal role of specific emotions in risk perception and contribute to literature showing that the effects of emotion on judgment are not solely due to the valence of the experienced emotion. However, they also suggest that the processes underlying emotion effects remain in need for further specifications.

We review research on emotions and financial decision making, with a particular emphasis on the role of emotion regulation and on traders in financial markets. We argue that variability in emotion regulation is a good candidate to explain important intra and inter-individual variability in susceptibility to key decision-making biases and hence in financial performance of market actors. We develop hypotheses concerning these relationships and describe a study which we are embarking on investigation the role of emotion regulation ...

Journal of Neuroscience, Psychology, and Economics, 2015

A large number of private investors deviate from maximizing expected monetary value of a given decision. Instead of focusing on fundamental indicators, they have the tendency to be driven by experienced gains and losses, or the emotional arousal experienced as a result of these trends. Up till now, little is known about how emotion regulation (ER) strategies, such as reappraisal or suppression, dictate the extent to which emotions are experienced, and how they impact deviations from expected value (EV)-maximizing behavior. We seek to answer these questions in this article. To this end, we conducted an experiment with 4 treatments, where participants traded stocks with higher/lower valuation and lower/higher probabilities of price increase. Skin conductance responses, heart rate measures and questionnaires were used to measure the emotional arousal and ER strategies. The results show that using ER indeed influences the level of emotional arousal experienced. First, reappraisers experienced lower levels of arousal, and suppressors higher. Second, while reappraisal reinforced the impact of emotional arousal on EV-maximizing behavior, adopting suppression strategy had no similar impact. Third, reappraisal reinforced the impact of integral arousal on EV-maximizing decisions, especially after experiencing losses. This was not observed for suppressors, whether they experienced a gain or a loss. We infer that reappraisal has an observable impact on decisions, especially after losses, and could be used to train investors to improve decision-making performance. The article concludes with theoretical implications of emotion regulation on physiological arousal, and on maximizing the expected value in a stock trading context.

We report on a qualitative investigation of the influence of emotions on the decision making of traders in four City of London investment banks, a setting where work has been predominantly theorized as dominated by rational analysis. We conclude that emotions and their regulation play a central role in traders' decision making. We find differences between high and low performing traders in how they engage with their intuitions, and that different strategies for emotion regulation have material consequences for trader behavior and performance. Traders deploying antecedent-focused emotional regulation strategies achieve a performance advantage over those employing primarily response-focused strategies. We argue that, in particular, response-focused approaches incur a performance penalty, in part because of the reduced opportunity to combine analysis with the use of affective cues in making intuitive judgments. We discuss the implications for our understanding of emotion and decision making, and for traders' practice. which has drawn upon the insights of cognitive psychology to incorporate the ''irrational'' elements of cognitive biases and collective sentiments, such as herding behavior, into models of financial decision making. Behavioral finance has had some success in modeling investor behavior and explaining well-known deviations of market behavior from the predictions of the efficient markets hypothesis-a mainstay of the neo-classical paradigm . However, within this field of study, the main role accorded to emotions to date is that they are portrayed as interfering with rational cognition, or they are seen as outcomes of the decision process affecting anticipated utility. In neither case are they acknowledged as integral and primary in their effects on choice and action (e.g., . The trader practitioner literature, though, is full of references to emotion and ''market sentiment.'' For example:

2003

There is some evidence indicating a relationship between variations in affect and risk aversion: under certain conditions the behavior observed suggests less risk aversion the more positive the affective state. The research presented in this paper examined how variations in everyday affective states influenced risk taking behavior in the laboratory using simple gambling tasks and then sought to corroborate findings in the laboratory using data on real world financial decision making. We observed a significant and positive relationship between affect and risky behavior in the laboratory that we replicated using structural equation modeling on real world financial data. It is argued that cognitive theories of affect and decision making might have real economic consequences.

2012

We examined the effects of two emotions, fear and anger, on risk-taking behavior in two types of tasks: Those in which uncertainty is generated by a randomizing device (''lottery risk'') and those in which it is generated by the uncertain behavior of another person (''person-based risk''). Participants first completed a writing task to induce fear or anger. They then made choices either between lotteries (Experiment 1) or between actions in risky two-person decisions (Experiments 2 and 3). The experiments involved substantial real-money payoffs. Replicating earlier studies (which used hypothetical rewards), Experiment 1 showed that fearful participants were more risk-averse than angry participants in lottery-risk tasks. However-the key result of this study-fearful participants were substantially less risk-averse than angry participants in a two-person task involving person-based risk (Experiment 2). Experiment 3 offered options and payoffs identical to those of Experiment 2 but with lottery-type risk. Risk-taking returned to the pattern of Experiment 1. The impact of incidental emotions on risk-taking appears to be contingent on the class of uncertainty involved. For lottery risk, fear increased the frequency of risk-averse choices and anger reduced it. The reverse pattern was found when uncertainty in the decision was person-based. Further, the effect was specifically on differences in willingness to take risks rather than on differences in judgments of how much risk was present. The impact of different emotions on risk-taking or riskavoiding behavior is thus contingent on the type, as well as the degree, of uncertainty the decision maker faces.

Abstract As an effort to resolve the conflicting evidences in the emotional influences on human decision making, the present study investigated the effects of positive and negative emotions induced by a false-feedback test on risky decision making in a gambling task. According to the measurements of PAD Emotion Scale (Mehrabian, 1995) both positive and negative emotions were successfully induced.

Manuscript submitted for publication, 2009

We examined the effect of three state emotions (fear, anger, and happiness) on risk-taking in lottery and interactive tasks. Incidental emotions were induced using a writing task. Participants then made choices either between lotteries (Experiment 1) or between alternative strategies in a risky two-person interactive decision (Experiment 2). Both experiments involved substantial monetary outcomes. We found that fearful participants were more risk-averse than happy or angry participants in Experiment 1, in which risk was based on a randomizing device, but less risk-averse in Experiment 2, in which risk was based on the decision of another human. The results demonstrate that the impact of emotions on risk taking is contingent on both the specific nature of the uncertainty faced and the specific emotion induced. Emotions of similar valence can have diametrically opposite effects on risk-taking, and risk-taking propensities in gambling tasks can be very different from those in interactive decisions.