Saturday, February 5, 2011

How does emotion affect business decisions?

During negotiations, how does a one’s emotion affect his or her decision making? There have been countless of research done on controlled environment about the effects of decision making such as the ones publish by Bechara, Naqvi, Dunn, Damasio (gut feeling), Ming and Young (anger and fear in project and financial decision making), Barnes, Thagard, Sayegh (emotions distort reasoning), Lowenstein and Bagozzi (decisions can be anticipated), Isen and Shalker (effect of emotions in decision making), Isen and Patric (mood maintenance). There are more, however I am not writing a lecture so let’s skip them. In the business world Warren Buffet’s famous advise "emotions should be left out of the investing process” is as famous as the man himself.

The common belief is that in a controlled environment the emotions like anger makes people commit more resources to a failing project, fear makes people abandon efforts when the going gets tough, happiness makes people takes less risk, sadness makes people take higher risk. Humans are naturally emotional creatures do emotions play a big part in our decision making process. For example when buying a mobile phone or a car design and performance plays an important factor since it elicits emotion.

But how about in the business world where decision makers are trained to separate emotions from decision making, where financial models and controls becomes a huge factor making the decision maker as cool headed as a computer crunching the numbers, where every logical aspects are carefully calculated and planned. How does emotion play a role? In my observations during the past 15 years both during commercial negotiations and technical management emotion still plays a big role when a decision maker is presented with a choice. Emotion also plays a part in plotting strategies and plans. Even the great Buffet introduces emotions much like any brilliant negotiator to break an impasse.

Looking back, how did your emotional state affected your decision making at that time? How did your decision affect the final outcome?

1 comment:

Clay said...

If you are emotional it will be hard for you to do business