Do your heart-strings influence your decision making more than your purse-strings? Do you think more with your heart than with your head? Conventional management wisdom urges the avoidance of feelings and encourages the use of rational thinking when it comes to decision making. From this perspective, decision making should be a matter of calculation, not intuition. Now, new research challenges this popular belief.
Based on the monitoring of 101 stock investors in a simulated exercise spanning four weeks, a study in the Academy of Management Journal reports that “contrary to the popular belief that the cooler head prevails, …people with hot heads – those who experienced their feelings with greater intensity during decision making – achieved higher decision making performance.”
But those who did best of all had something additional going for them, namely, an ability to differentiate among the emotions they experienced. As the authors put it:
“The popular prescription for successful emotion regulation, Ignore your emotions, appears, in view of our results, not to be the right answer. Instead, the results suggest exactly the opposite: individuals who better understood what was going on with their feelings during decision making and thus reported them in a more specific and differentiated fashion were more successful in regulating the feelings’ influence on decision-making and, as a result, achieved higher investment returns.”
In short, Know thyself, would seem a useful dictum for present-day investors and managers.
Previous research has produced conflicting views of whether emotions make for better or worse decisions. One view is that feelings introduce biases into decision making which compromise its soundness; the other is that emotions improve decision making by such varied means as boosting attention and memory, enhancing the ability to establish priorities, or sharpening such cognitive faculties as creativity or analysis.
While this new study does not rule out the potential of emotions to introduce irrational biases into decisions, it suggests that such biases have less to do with the intensity of feelings than with lack of clarity about them. The best performers in this simulation (who achieved a return of 12.7%) tended to have relatively intense feelings and an above-average ability to differentiate among them. The emotions these people experienced during the simulation did not push them into high-risk choices.
In other words, good decision-making arises from being able to have intense emotions and to regulate them at the same time.
While challenging the dominant view of managers and investors that feelings are best kept out of decision-making, the researchers add that this view is “not… entirely wrong.” The problem is that it “attempts to minimise the potentially negative effects of our feelings together with all the potentially positive effects, such as enhanced decision efficiency, engagement, and creativity — thus throwing the baby out with the bathwater. ”
A better alternative, they write, is “to minimise the possible negative influences of affective feelings once affective experiences and expression become more encouraged and less constrained in the workplace.”
Reference:
Seo, M. & Barrett, L F. (2007). Being Emotional during Decision-Making — Good or Bad? An Empirical Investigation. Academy of Management Journal, 50, 923-940.
