What role do feelings/ emotions have in decision making? Positive? Negative? How do emotions supplement the rational cognitive processes and mediate decision making? Some notes from my various readings....

1. G E O R G E L O E W E N S T E I N & J E L S T E R
Feelings/ Emotions
& Decision Making

2. 1 Channel Many Channels
What do you Choose?
2

3. 5 Jams 24 Jams/ Shelf full
What do you Choose?
Source: The Art of Choosing – Sheena Iyengar
3

4. 5 Jams 24 Jams/ Shelf full
What do you Choose?
Source: The Art of Choosing – Sheena Iyengar
Regret
4

5. Silver Medal Bronze Medal
What do you Choose?
Source: The Paradox of Choice – Barry Schwartz
5

6. NOBEL PRIZE - 1978
SATISFICING
BOUNDED RATIONALITY
LIMITATIONS OF
- TIME
- KNOWLEDGE
- COGNITIVE CAPABILITIES
The Carnegie School
6

7. ORGANIZATIONS
– SIMON & MARCH (1958)
- R O U T I N E S
- R O L E O F I N D U C E M E N T S
- C O N F L I C T S ( B R E A K - D O W N I N D M )
BEHAVIORAL THEORY OF FIRM
– MARCH & CYERT (1963)
- O R G C A P A B I L I T I E S
- S E A R C H C O S T S
- P R O C E S S - O R I E N T E D M O D E L S
The Carnegie School
7

8. GEORGE LOEWENSTEIN
-H E R B E R T S I M O N P R O F O F E C O &
P S Y C H
- P H D I N E C O N O M I C S ( Y A L E )
- R E S E A R C H I N T E R E S T S
- Intersection of Economics/ Psychology
- Inter-temporal choice in Economics
- Visceral States
- Negotiations/ Impasse
The Carnegie School
8

9. GEORGE LOEWENSTEIN
RISKS AS FEELINGS
- A N T I C I P A T O R Y F E E L I N G S
- S E C T I O N I - A S S U M P T I O N S
- Optimistic Vs. Pessimistic
- Here & Now Vs. Forward Looking
The Carnegie School
9

10. GEORGE LOEWENSTEIN
RISKS AS FEELINGS (CONTD..)
- S E C T I O N I I – C O N D I T I O N S
- Emotions & Probability sensitivity
- Inter-temporal
- Vividness
- Evolutionary Preparedness
- S E C T I O N I I I – I M P L I C A T I O N S
- Gender studies
- Age studies
- Policy Implications
The Carnegie School
10

11. JON ELSTER - NORWEGIAN
SOCIAL & POLITICAL THEORIST
- Philosophy of SOCIAL SCIENCE
- Rational choice theory
- In recent years gone “sour on Rational choice/
disillusioned with Power of reason”
- Recent book – Explaining social behavior
Emotions &
Economic Theory
11

12. JON ELSTER
EMOTIONS (VS. “VISCERAL
FACTORS”)
- Have intentional object
- Have somatic markers
- Have valence (pleasure/ pain)
- Have associated action tendencies
- Can avoid (but at a cost!)
- Can build/ plan Emotional Character
Emotions &
Economic Theory
12

13. EMOTIONS & NEUROBIOLOGY
OF DECISION MAKING
- Help avoid procrastination
- Help take “best” decisions
- Helps deal with “addiction to reason”
- Help avoid Opportunity costs
- Evidence? Patients with injuries to frontal
lobes
Emotions &
Economic Theory
13

14. EMOTIONS IMPACT
- Sense of Satisfaction
- Quality of Decisions
- Perception of alternatives
- Self-image/Self-esteem
EMOTIONS SUSCEPTIBLE TO:
(SOURCE: NUDGE – THALER & SUNSTEIN)
- Peer Pressure/ conformity
- Temptations
- Biases & Blunders
Emotions &
Economic Theory
14

15. Choice 1 Choice 2
Acknowledge the reality that
both emotions and logic
have a role to play in
decision making?
Acknowledge limits to
human cognition, emotions,
time and knowledge?
Be Satisficed?
Invest an inordinate amount of
time, effort and mind space on
finding the “best” outcome?
Ignore limitations of human
cognition, time, etc?
Risk inordinately higher search,
cognitive, emotional costs?
Be Maximized?
What do you Choose?
Which choice is more “rational”?!
“We don’t know what we don’t know” - Hayek
15