Emotion

Introduction Television and print reporters commonly attribute the decisions

people make to emotions. The financial press, in particular, relies on emotion to explain

the movements of financial markets, both up and down. But, we really do not know that much about how emotions

interact with behavioral influences and other emotions to produce human actions and decisions.

Even less is known about how the interactions of innately emotional people produce market outcomes.

Six observable features allow us to differentiate emotions from other mental states people experience, like moods.

Whether our brain controls our emotions, or vice versa, is important for us to understand because as financial decision-makers we want to know how to control (or even put to good use) our emotional responses.

SUBSTANCE OF EMOTION Psychologists generally agree that such states as happiness,

sadness, anger, interest, contempt, disgust, pride, fear, surprise, and regret are emotions. We can each create our own list of emotions, but we cannot differentiate emotions from other mental states.

Although no features are unique to emotions, Jon Elster argues that six observable features allow us to define an emotion:

1. Cognitive antecedents

2. Intentional objects

3. Physiological arousal

4. Physiological expressions

5. Valence

6. Action tendencies

Cognitive antecedents In most cases, beliefs trigger an emotional response. For

example, you become angry when another driver runs a red light and almost causes a collision because you believe the other driver is driving carelessly and has endangered your life.

Notice how this emotion differs from hunger, another bodily state that arises because your stomach is empty. Though hunger may be triggered by a belief (such as “it is noon so I must be hungry for lunch”), it is generally triggered by a sensory signal (such as an empty feeling or growling), rather than a thought.

Of course the distinction is not perfect, but it is generally understood that beliefs are important in the generation of emotions.

Intentional objects Emotions are about something like a person or situation. For

example, you are angry with the driver who ran the light. In most cases, the object of the emotion is closely related to the belief that triggered the emotion. You are angry with the driver of the other car because he is reckless.

Also note that the distinction between an emotion and a mood is important.

An emotion is about something, whereas a mood is a general feeling that does not focus on anything in particular.

You are angry with the reckless driver, but you may also have been in a depressed mood, in general, if you suffered from depression.

Physiological arousal Hormonal and nervous system changes accompany emotional

responses. Your body actually goes through hormonal changes when you experience an emotion.

During the near collision, you might feel your blood pressure rising.

Physiological expressions Emotions can be characterized by observable expressions that

are associated with how a person functions. You may express your anger at the other driver by raising your

voice or shaking your fist in his direction. Though some physiological responses are functional, others

simply result from the situation. For example, an angry person’s red face results from

increased blood flow, but does not necessarily assist the person in resolving the problem.

Many physical expressions associated with emotions are consistently observed characteristics.

For example, if you saw a person with a red face and clenched fists, you might guess that he was angry.

Contd… Notice, also, that the expressions are not necessarily unique

and can result from very different emotions. A red face is also associated with embarrassment or feelings

of shame. In addition to an angry reaction, a person might also clench his fists in a time of celebration or joy.

Valence Emotions can be rated on a scale with a neutral point in the

center and positive and negative feelings on the endpoints. Valence is a psychological term that is used to rate feelings of

pleasure and pain or happiness and unhappiness. You are feeling very negative toward the other driver.

In many cases, emotions that are highly stimulating are also at the positive or negative endpoints for feelings. Notice that we can’t always assume that strong emotions are at the endpoints (or vice versa).

For example, one author’s teenage daughter sometimes reports very strong feelings of boredom, an emotion low on valence.

Action tendencies Emotions are linked to action tendencies. When you experience

an emotion, you often feel an urge to act a certain way. In some cases, you might even feel compelled to take action.

You may have an impulse to follow the reckless driver and give him a piece of your mind.

Or, you might modify the initial urge to action and simply drive away, while carefully watching other drivers on your way home. This regulation of your action tendency can result with or without conscious choice.

Your body might actually automatically inhibit your reaction. At the same time, social forces restraint you in.

For example, you might decide against chasing the reckless driver and telling him exactly what you think of him because you realize that others will see a seemingly out-of-control response.

Together, the six features just described help us define what an emotion is and differentiate emotions from other mental states.

Notice that many emotions can be regarded as negative (anger, contempt, disgust, fear, and sadness). Historically, researchers in psychology have focused on negative emotions. Positive emotions, such as happiness, have received much less attention.

Mood vs Emotion It is equally important to understand what an emotion is not. As

mentioned previously, mood is distinct from emotion. Like emotions, moods usually have positive or negative

valence, but, unlike emotions, moods tend to persist for long periods of time.

In addition, emotions and moods are distinct in that emotions arise in relation to an object or stimulus, whereas a mood is a general feeling not focusing on any particular item.

In contrast to emotions and moods is affect, or how a person experiences a feeling. A person’s affective assessment is the experience a person has in response to a stimulus. Affect is evaluative in that a person can say whether a stimulus is good or bad, positive or negative.

Note that although affect reflects an evaluation, it does not require (or preclude) a cognitive response. For example, you might think that a rose smells good but not really be able to cognitively evaluate why it smells good to you. We think of emotional processes as including affective reactions.

Heuristics

INTRODUCTION Heuristics, often referred to as rules of thumb, are means of

reducing the search necessary to find a solution to a problem. They are shortcuts that simplify the complex methods of

assessing the probabilities and values ordinarily required to make judgments, and eliminate the need for extensive calculation.

Heuristics provide subjectively compelling approaches and reflect the fact that people’s assessments of likelihood and risk do not usually conform precisely to the laws of probability.

People tend to relate probability not to events, but to descriptions of events. Although people may use heuristics to simplify preferences or data sets, heuristics are best viewed as devices for simplifying the process of choosing between alternatives.

Heuristics become particularly important in the presence of uncertainty, which undermines the usefulness of complex logical calculations.

RATIONALE FOR HEURISTICSThere are many reasons for using heuristics. Decision makers may be unaware of the optimal way to solve

a problem, even when an ideal solution exists. Moreover, they may not have the resources (or the access to credit) to obtain help from others, or the deliberation costs involved may be excessive.

Decision makers may be unable to obtain all the information necessary for an optimizing solution, or may not be able to do so by the time a decision must be made. Even if they can obtain all the information, decision makers may be unable to complete the optimization calculations in time.

While optimization techniques may be feasible, they may not yet have been devised for some types of problems.

Contd… Where there are multiple objectives, unique, optimal solutions are

unlikely. The use of rules of thumb that decision makers can rapidly apply

may enable them to keep certain matters secret until they decide to make the decision known.

The problem may not lie in obtaining the information, but in perceiving it correctly and avoiding attempts to deal with what is actually a variant of the matter under consideration.

An extraordinary amount of information may overwhelm decision makers.

A decision maker may have insufficient familiarity with the programs necessary to process the data. In addition, the emotional character of the decision (or the decision maker) might be overwhelming, at least in the context in question. Finally, the state of awareness of decision makers at the time in question or the particular framing of the problem may pose issues.

Seemingly winning formulas of some market participants may induce decision makers who ordinarily make full calculations to stray from that course, even if only temporarily. Unfortunately, those seemingly winning formulas may involve so much additional risk and uncertainty that they are unwarranted by traditional rational considerations.

The use of heuristics may be advisable if implementation of what is calculated presents major problems.

The use of heuristics may be the only reasonable approach in cases of appreciable uncertainty.

The use of heuristic shortcuts is most appropriate where they closely approximate the result of optimization calculations.

Types Heuristics come in all shapes and sizes. One dichotomy is

between those heuristics that are reflexive, autonomic, and non cognitive, and economize on effort (Type 1); and others, which are cognitive in nature (Type 2).

Type 1 heuristics are appropriate when a very quick decision must be made or when the stakes are low (“I choose a burger over a pizza because I usually prefer them”).

Type 2 heuristics are more effortful and are appropriate when the stakes are higher.

In some cases, an initial reaction using a Type 1 heuristic can be overruled or supported using a Type 2 heuristic (“No, I will choose the pizza today because it is prepared a bit differently and I like to try new things”).

Autonomic If you hear a loud sound while walking down the street, your

tendency is to move away from it until examination and analysis can be undertaken. There is no thought here: command-and-control is entirely in the primitive emotional recesses of the brain. After a second, of course, you take a look around and ascertain whether the sound is a threat (if a gunshot, let’s move even farther away) or an item of curiosity (if a human cannonball at a carnival, let’s take a closer look).

Another example is in the kitchen. If you look into the refrigerator and an item of food emits an odor that you are not exactly familiar with, the obvious reaction is to dispose of the food. There is a reasonable probability that you might become sick if you eat it. The reader will likely agree that both the “move away from the loud sound” and the “avoid eating food with an unfamiliar odor” heuristics make eminently good sense, and there is no difficulty in seeing how these shortcuts have contributed to man’s survival.