Emotions play a part in biz decisions

What role do emotions play in your business decisions?

Kai Ryssdal: You know those days when you're just crabby -- in a lousy mood for some reason that you can't quite put a finger on. Then when you get to work you're all snappy with people who had nothing to do with why you're in such a lousy mood?

Behavioral economist Dan Ariely says there's a word for that. He's here to explain.

Dan, good to talk to you again.

Dan Ariely: Same here.

Ryssdal: So, what does it say that I am actually feeling pretty good about talking to you today?

Ariely: Well, and we had nice chats before. It must be that you remember how nice I am.

Ryssdal: I got all your quiz questions right. So I'm feeling pretty good about that.

Ariely: Or maybe you're hopeful that you'll get them right.... So, what happens is that, first of all, there's a question about how our emotion changes our decision-making. And it turns out that what we call incidental emotions -- which is sometimes an emotion that is not because of the fact -- could actually influence our decision-making.

So, for example, imagine that you and I have a chat and you are delighted afterward and you go and you're facing some other decision -- investing in a bank, or giving money to somebody, or buying a cup of coffee. It could be that your residual emotion that came from the discussion with me would nevertheless influence your next decision.

Ryssdal: So, let's say I had a fight with my wife this morning, or the baby was up in the middle of the night. Would that color my interactions, professionally, today?

Ariely: So, usually when we think about emotions we think of them as fleeting, right? You feel something for a while and then it goes away. You got upset with your wife in the morning, presumably next week you will not feel this way. But imagine that you got upset with your wife, you come to work angry ...

Ryssdal: Never.

Ariely: ... You start behaving toward your producer in a way that is really unpleasant, unprofessional. And, you know, she behaves in a similar way. And next time you come to work you don't have the emotion anymore but you ask yourself, "How do I usually treat her?" And you say, "Oh, I remember how I treated her yesterday. I'm kind of rude and obnoxious. This must be the kind of way that I treat her usually. Let me keep on behaving this way." And, therefore, you would keep behaving this way again and again and again.

Ryssdal: What about -- just to frame this in terms of the financial crisis and the whole economy thing ... Let's say I go to do a trade in my stock portfolio, and I'm remembering the cataclysm of the past year in the stock markets. Does that kind of situation apply?

Ariely: Yeah, the same thing can happen in financial investments. So, imagine if you go to your broker to discuss what's your risk attitude. And again, you come up after having a good night or a bad night with your wife and, because of that, your risk attitude is either higher or lower. And now you talk to your broker and you don't understand that much of your risk attitude is not based on your true preference for risk, but it's based on the fact that you're annoyed or upset or something like that. But you put an action into plan. You write it down. You decide your risk allocation and so on. Now this decision might actually escort you for the rest of your life until retirement because you've set it up on paper and you created this, basically, precedent for behavior that you'd later on follow.

Ryssdal: And it seems to me it takes a very perspicacious consumer -- a person who's intensely self-aware -- to be able to either change the behavior one way or the other or not let these things influence them.

Ariely: Yeah, I think it's basically impossible. You're right. It would mean that we would have to continuously analyze: Where are we? Why are we doing it? What are all the reasons for this? And I'm not sure anybody wants to live this way.

But, you know, I also don't want this to end on a sad note.

Ryssdal: 'Cause that'll influence how you and I have our next chat, right?

Ariely: That's right. So let's think about the positive things. So, imagine you're in a date, and you want the person you're dating to feel good about you, right? So, if you go to a movie that is slightly scary, or if you serve to them a dish that has some hot peppers, and then they start sweating or their heart starts kind of beating a little faster, if they don't know where this emotion is coming from, they might mis-attribute it and think, "Oh my goodness, the company of this person I'm with, it must be great because I'm so excited I'm sweaty, my heart is pumping," and therefore be more likely to fall in love with you.

Ryssdal: Dating advice from Dan Ariely. He's a professor of behavioral economics at Duke University. His book is called, "Predictably Irrational." Dan, thanks a lot.

Ariely: My pleasure.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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