Business Psychology - Latest Findings
Article No. 273
Business Practice Findings, by James Larsen, Ph.D.
Deciding with your Emotions
New research reveals a weakness in decision making.
Consider the following three situations and guess what they have in common.
In all three situations, an initial choice turns out to be disappointing and throws the decision maker into a dilemma: Should the mother reject the bypass surgery for herself? Should the investor look for a different kind of investment? Should the retailer go ahead with his plans for a second expansion store?
Whenever choices can not provide a guaranteed outcome, the best one can do is to choose carefully and to prepare for disappointments. Unfortunately, recent research by Rebecca Ratner, from the University of North Carolina at Chapel Hill, shows that most people fall down badly on the second step in this process, preparing oneself for a disappointing outcome.
Professor Ratner conducted an experiment that placed people in investment situations. They were asked to chose between two brokers, one with a 54% probability of success and the other with a 43% probability of success. Most people chose the broker with the better record, but that choice turned out badly. Her subjects were told that the investments this broker chose lost 15% of their value.
Next, Professor Ratner repeated the experiment. She asked her subjects to choose again, and she limited them to these same two brokers. On this second decision, many of her subjects abandoned the broker with the higher probability of success and chose the poorer broker.
Professor Ratner believes that this experiment revealed the power of an emotion – regret – to interfere with logical decision making. People regretted the outcome of their initial decision, found themselves in a dilemma on the second trial, and then chose badly, selecting the poorer broker. She believes such bad choices are a common event.
For people who make decisions every day, this is not a good finding. It suggests that we have a problem making wise decisions when our emotions are aroused, especially the emotion of regret when it follows a disappointing outcome of a good decision.
Professor Ratner wanted to learn more, so she conducted three more experiments that explored factors that might impact this negative effect. For example, she worsened the effect by asking people to focus on their emotions just before selecting the second broker. She lessened the effect by asking people to review their beliefs about each broker’s probability of success before selecting again. Finally, she measured her subjects’ tendencies to think logically and found that logical people tended to chose the better broker in the second trial while emotional people chose the poorer one.
Professor Ratner believes we can control the power of regret by dampening emotional reactions to disappointing outcomes. She offer these suggestions:
Making decisions is important and difficult work in business, and Professor Ratner’s work warns us of a significant threat to this work. But armed with an awareness of this threat and a few strategies to blunt its impact, we can make better decisions.
Reference: Ratner, Rebecca and Kenneth Herbst (2005) When Good Decisions have Bad Outcomes: The Impact of Affect on Switching Behavior. Organizational Behavior and Human Decision Processes, 96 (1), 25-37. www.businesspsych.org
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