Emotions And Decision Making

What Role Do Emotions Play in Decision-Making?

While traditional economics assumes people make decisions rationally, behavioral economics recognizes that emotions significantly influence how we make choices. Emotions like fear, regret, anticipation, and joy can drive irrational decisions and impact risk-taking behavior, investments, and even day-to-day choices.

Key Concepts of Emotions and Decision-Making

Affect Heuristic
- 🎭 People make decisions based on their emotional state rather than logical evaluation.
- Example: Deciding not to fly after hearing about a plane crash on the news, even though the chances of an accident are very low.

Regret and Anticipation
- 💭 People often avoid actions they think they’ll regret in the future or seek out experiences they anticipate will make them happy.
- Example: Choosing not to invest in a risky stock due to the fear of losing money, despite its potential for high returns.

Emotional Contagion
- 💫 Emotions can spread from one person to another, influencing collective decisions.
- Example: Excitement at a sports game might cause a crowd to act more enthusiastically or make bold bets, even if they wouldn’t normally take such risks.

How Do Emotions Affect Decision-Making?

Step 1: Encounter a decision.
- 🎭 For Affect Heuristic: Emotions (fear, happiness) shape your decision quickly and automatically.

Step 2: Consider the potential regret or anticipation of outcomes.
- 💭 People weigh possible future emotions like regret to decide if they should act or avoid.

Step 3: Emotional contagion spreads, influencing collective behavior and group decisions.
- 💫 Decisions can be affected by the emotions of others around you.

Emotions and Decision-Making

Emotions & Decisions

Affect Heuristic
- 🎭 Decisions based on current emotions

Regret & Anticipation
- 💭 Avoiding future regret, seeking positive experiences

Emotional Contagion
- 💫 Emotions influencing group decisions