Emotions in economics

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Not only in psychology and sociology , but also in economics , especially behavioral economics , emotions are gaining increasing attention, especially in connection with decision-making processes. However, the field of emotions is not entirely new in economics. According to Loewenstein, Jeremy Bentham defined utility as the sum of positive over negative emotions as early as 1789 in classical utilitarianism . However, this view quickly gave way to a more easily quantifiable definition of usefulness.

Expected and immediate emotions

In economic work on emotions, a distinction is made between expected and immediate emotions. Expected emotions ( anticipated / expected emotions ) are not experienced or felt at the time of the decision, but rather later in the future, such as disappointment and regret. However, more and more often are immediate emotions ( immediate Emotions ) at the center of neuro- and behavioral economic research. Immediate emotions occur immediately at the time of the decision (e.g. hunger, pain, anger). According to Loewenstein, direct emotions can lead to behavior that people see themselves as contrary to their own benefit (e.g. an aggressive driving style).

Cold and hot phases

Loewenstein also differentiates between “cold” (no immediate emotions such as hunger, anger, pain) and “hot” (people are currently hungry, angry, excited, etc.) phases. People tend to underestimate the effect of immediate emotions, or people often misjudge their emotions when they are in a cold phase. The reverse is also true. For example, if a person is not hungry at the moment, it is difficult for them to assess what it will be like if they are hungry later. This "gap" is also called the hot-cold empathy gap .

People who want to go on a diet and plan to skip dinner the next day when they are cold only rarely succeed because they cannot put themselves into the emotional state at the time of the event at the time of planning. Conversely, people tend to overestimate their future hunger levels when shopping for food on an empty stomach.

In addition, Loewenstein and Adler (1995) observed the hot-cold empathy gap in connection with the endowment effect . In their experiment, participants could not gauge how painful it would be if they sold their mug. Participants should set a retail price for a mug they don't already own. After receiving the cup, however, the participants no longer wanted to give it away so cheaply. It has thus been shown that immediate emotions have a major influence on decision-making. E.g. when people are happy (e.g. before a wedding), they do not see what emotions can arise in the future and therefore do not conclude a marriage contract. This can also be transferred to business partnerships. It is questionable, however, whether every person in a “cold” phase would decide to enter into a marriage contract.

Making decisions at risk

Emotions also play a role in connection with framing (see framing effect ) when making decisions under risk . Rick and Loewenstein (2010, pp. 141 f.) Use a model to show how aversion to disappointment can lead to bad economic decisions.

A participant can choose between game A and B (see table 1). In the game itself, the person then draws colors; the probabilities according to which the colors are drawn are listed in the table. Since the participant gets $ 30 for green in game A, but loses $ 10 in game B, he might regret his decision if he chooses B and finally draws green. Therefore, the participant might prefer game A. In this case, the expected emotion of repentance would lead to a negative decision.

Game a Game B
90% chance for white (result $ 0) 90% chance for white (result $ 0)
6% chance for red (result $ 45) 7% chance for red (result $ 45)
1% chance for green (result $ 30) 1% chance for green (result -10 $)
3% chance for yellow (result -15 $) 2% chance for yellow (result -15 $)
Table 1: According to Rick and Loewenstein (2010, p. 141 f.).

If the two games are now shown differently, as in Table 2, it becomes clear that game B or game B 'is the better choice. A 'and B' are equivalent to A and B. The expected value for A and A 'is $ 2.55, for game B and B' it is $ 2.75. But in the game presented differently, there is no longer any reason to regret.

Game A ' Game B '
90% chance for white (result $ 0) 90% chance for white (result $ 0)
6% chance for red (result $ 45) 6% chance for red (result $ 45)
1% chance for green (result $ 30) 1% chance for green (result $ 45)
1% chance for blue (result -15 $) 1% chance for blue (result -10 $)
2% chance for yellow (result -15 $) 2% chance for yellow (result -15 $)
Table 2: According to Rick and Loewenstein (2010, p. 141 f.).

Shiv et al. (2005) also come to the conclusion that emotions have a negative effect when making investment decisions . Patients with brain damage affecting emotions faced the decision to invest $ 1 over 20 rounds . When the dollar was invested a coin was tossed. With heads the dollar was lost, but with tails the participant received 2.50 USD. Since the expected value of an investment is higher ($ 1.25 versus $ 1), the best decision would be to invest every round. The patients in the target group invested an average of 83.7% of the rounds, the control group (patients with brain damage without influence on emotions) and the "normal" patients only in 60.7% and 57.6% respectively. Furthermore, the patients in the target group achieved a higher profit than the other two groups. Particularly after losses in the previous round, the control patients and normal patients invested significantly less (37.1% and 40.5%, respectively, compared to 85.2% of the target patients). This shows that the patients in the target group are not risk averse in contrast to the other two groups.

However, Bechara and Damasio (2005) come to the opposite conclusion in their work, in which “normal” patients make the better decisions and people with brain injuries make the worse ones. They attribute this to the fact that patients with an injured amygdala no longer know how painful it is to experience financial loss.

From this contrast, one can conclude that the influence of emotions on decisions can vary depending on the situation. In addition, many decisions also involve human interaction. For example, Kausel and Connolly (2014) examined the relationship between a person's behavior and the emotions of the other in an investment trust game . In doing so, they suggest that knowledge of the other person's emotions influences behavior. Their results show that person A sends less money to an angry person B than to a guilty person B because the latter is not trustworthy and grateful. But when it came to sending money back, both the angry and the guilty people sent back roughly the same amount of money and more than people in a neutral state. Accordingly, mistrust is often unfounded due to emotions.

Emotions in the ultimatum game

A far more commonly used method is the ultimatum game , which proves the influence of immediate emotions. This examines the role of emotions in decision-making situations. In this game, player A decides on an amount of money. He makes a suggestion to player B how much he should get as a share. If B agrees to the offer, the money will be distributed as proposed; if player B refuses, neither A nor B get anything. Basically it would be better for B to accept any sum, otherwise he would get nothing. However, negative emotions that are caused by unfairness play an important role, so that players actually behave differently. Player B rejects a sum if he considers the offer to be unfair. However, if the (unfair) proposal comes from a computer and not from a human, it is much easier for the participants to accept it.

In their study, Andrade and Ariely (2009) examined in particular the influence of happiness and anger and found that happy people are more likely to accept an unfair offer than angry people. However, if they swap roles and make the offers, the formerly angry recipients offer their counterparts more than happy people. This is related to the angry person's fear that the other person, just like they did before, would reject an unfair offer.

Emotions as a cause of environmentally conscious behavior, donations and consumption

Carrus et al. (2008) found in their study that expected emotions and previous behavior indicate the desire and intention for environmentally conscious behavior. For example, a person would like to B. use public transport to get to work in the future because she feels guilty if she doesn't protect the environment. Gregory-Smith et al. (2013) come to the conclusion in their interview-based study carried out in Great Britain that emotions have an influence on moral / ethical consumer behavior. In particular, the emotions of guilt and shame, but also pride and satisfaction, lead to the purchase of fair trade products or donations. However, an attitude-behavior gap was also determined in which many of the respondents want to consume morally and ethically, but still resort to cheaper products to save for a car, vacation or other.

According to Rick and Loewenstein (2010, p. 139), advertising also tries to influence the emotions of consumers and in doing so to activate expected and immediate as well as negative and positive emotions. For example, the diet industry in particular is trying to stimulate positive emotions that people can expect when they fit into smaller jeans. In addition, in some department stores the scent of biscuits is sprayed on to stimulate hunger. Furthermore, one-day-only sales would activate the expected emotion of regret in customers, in that they would later buy the product for a higher price if necessary. Charitable organizations also try to address people's feelings of guilt in order to encourage them to donate.

Means and Ends

Goals play an essential role in a person's behavior. According to Fishbach and Ferguson (2007, p. 491), people's goals are “desirable end states” ( ends ) that affect assessments, emotions and behavior. Final states can "Medium" ( Means ) can be achieved. E.g. the means “learning” can lead to the desired end state “success”. Emotions are therefore the result of target achievement or non-achievement. Fishbach and Ferguson outline an example in which a father hopes his son will be successful. If the son reaches the goal he is happy, if he does not achieve it he is dejected. If his father expects success, the son's emotions when reaching the goal or when failing are others, namely relief and restlessness.

Cohen (2007) relates the means-ends theory with reference to Herbert A. Simons Administrative Behavior (1947) in connection with decision-making situations. The final states are the result of the decision as to which means the goal should be achieved. According to Cohen, Simon's work is about organizational rationality. Rationality is to choose the most appropriate means to achieve the goal. This model is the forerunner to bounded rationality .

The means ends argument also plays a role in group decision-making. The emotional transfer between the decision-makers plays a particularly important role. This can take place via three mechanisms. In this way, one of the decision-makers can be infected with their emotions by another. Altruism also plays a role in that one person may take over the other person's emotional state out of concern. According to the means ends argument, one person convinces the other person, e.g. B. by showing the person a means of which they were not yet aware. It is not just your own emotions that influence behavior, but also the emotions of others.

Remarks

  1. ↑ In the original: “Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do ”(Bentham 1789).

Individual evidence

  1. ^ John Foster, J. Stan Metcalfe: Economic emergence: An evolutionary economic perspective . In: Journal of Economic Behavior & Organization . tape 82 , no. 2-3 , 2012, p. 420-432 , doi : 10.1016 / j.jebo.2011.09.008 .
  2. ↑ a b c d e f g h George Loewenstein : Emotions in Economic Theory and Economic Behavior . In: American Economic Review . 2000, p. 426-432 .
  3. ↑ Agnes Virlics: Emotions in Economic Decision Making: A Multidisciplinary Approach . In: Procedia - Social and Behavioral Sciences . tape 92 , 2013, p. 1011-1015 .
  4. ↑ Jeremy Bentham : An Introduction to the Principles of Morals and Legislation . 1789, p. Chapter I: Of The Principle of Utility .
  5. ^ A b Antoine Bechara, Antonio R. Damasio: The somatic marker hypothesis: A neural theory of economic decision . In: Games and Economic Behavior . 2005, p. 336-372 .
  6. ↑ a b c d e f g h Scott Rick, George Loewenstein : The Role of Emotion in Economic Behavior . In: Michael Lewis, Jeannette M. Haviland-Jones, Lisa Feldman Barrett (Eds.): Handbook of Emotions . 3. Edition. Guilford Press, New York 2010, ISBN 1-60918-044-5 , pp. 138-156 .
  7. ↑ George Loewenstein , Daniel Adler: A Bias in the Prediction of Tastes . In: The Economic Journal . tape 105 , no. 431 , 1995, pp. 929-937 .
  8. ^ A b Baba Shiv, George Loewenstein , Antoine Bechara, Hanna Damasio, Antonio R. Damasio: Investment Behavior and the Negative Side of Emotion . In: American Psychological Society . 2005, p. 435-439 .
  9. ^ A b c d Edgar E. Kausel, Terry Connolly: Do people have accurate beliefs about the behavioral consequences of incidental emotions? Evidence from trust games . In: Journal of Economic Psychology . tape 42 , 2014, p. 96–111 , doi : 10.1016 / j.joep.2014.02.002 .
  10. ^ A b c Eduardo B. Andrade, Dan Ariely: The enduring impact of transient emotions on decision making . In: Organizational Behavior and Human Decision Processes . tape 109 , no. 1 , 2009, p. 1–8 , doi : 10.1016 / j.obhdp.2009.02.003 .
  11. ↑ Alessandro Grecucci, Cinzia Giorgetta, Mascha Van't Wout, Nicolao Bonini, Alan G. Sanfey: Reappraising the ultimatum: An fMRI study of emotion regulation and decision making . In: Cerebral Cortex . tape 23 , no. 2 , 2013, p. 399-410 , doi : 10.1093 / cercor / bhs028 .
  12. ↑ a b c d e f g Alan G. Sanfey, Luke J. Chang: Multiple systems in decision making . In: Annals of the New York Academy of Sciences . tape 1128 , 2008, p. 53-62 , doi : 10.1196 / annals.1399.007 .
  13. ^ Alan G. Sanfey, James K. Rilling, Jessica A. Aronson, Leigh E. Nystrom, Jonathan D. Cohen: The neural basis of economic decision-making in the Ultimatum Game . In: Science . tape 300 , no. 5626 , 2003, p. 1755–1758 , doi : 10.1126 / science.1082976 .
  14. ↑ Giuseppe Carrus, Paola Passafaro, Mirilia Bonnes: Emotions, habits and rational choices in ecological behaviors: The case of recycling and use of public transportation . In: Journal of Environmental Psychology . tape 28 , no. 1 , 2008, p. 51-62 , doi : 10.1016 / j.jenvp.2007.09.003 .
  15. ^ A b Diana Gregory-Smith, Andrew Smith, Heidi Winklhofer: Emotions and dissonance in 'ethical' consumption choices . In: Journal of Marketing Management . tape 29 , no. 11-12 , 2013, pp. 1201-1223 , doi : 10.1080 / 0267257X.2013.796320 .
  16. ↑ a b Ayelet Fishbach, Melissa J. Ferguson: The Goal Construct in Social Psychology . In: Arie W. Kruglanski, E. Tory Higgins (Eds.): Social Psychology. Handbook of Basic Principles . 2nd Edition. Guilford Press, New York 2007, ISBN 978-1-57230-918-0 .
  17. ^ Herbert A. Simon : Administrative Behavior: A Study of Decision-Making Processes in Administrative Organization . 1st edition. Macmillan, New York 1947.
  18. ^ A b c Michael D. Cohen: Perspective - Administrative Behavior. Laying the Foundations for Cyert and March . In: Organization Science . tape 18 , no. 3 , 2007, p. 503-506 , doi : 10.1287 / orsc.1070.0275 .
  19. ↑ a b c d e f Paul Thagard, Fred W. Kroon: Emotional consensus in group decision making . In: Mind & Society . tape 5 , no. 1 , 2006, p. 85-104 , doi : 10.1007 / s11299-006-0011-5 .