Highly illogical, captain

Galaxy of stars

Star Trek’s Mr. Spock would often give his Enterprise shipmates a look containing both sympathy and superiority whenever he believed they were allowing their emotions to rule over reason. The truth is, though, that if the human race had developed along the lines of the emotion-free Vulcans, our lives would be considerably more difficult, and in all likelihood we would not have survived at all.

Decision making tends to be seen as a process in which two separate and opposite mechanisms struggle with the other. The emotional and impulsive mechanism within us tempting us to choose the “wrong” thing while the rational and intellectual mechanism slowly and ploddingly promises to lead us to the right choice. This description, which was also shared by many scientists until a few decades ago, is both simplistic and wrong. 

Our emotional and intellectual mechanisms work together and sustain each other. Sometimes they cannot be separated at all. In many cases a decision based on emotion or intuition may be much more efficient—and indeed better—than a decision arrived at after thorough and rigorous analysis of all the possible outcomes and implications.

The new insights into the role of ‘rational emotions’ have been the result of a quiet revolution over the past two decades in three important research disciplines: brain sciences, behavioral economics and game theory.

For example, complementing the theoretical work, there have been experiments into an important hormone called oxytocin - what has been called the ‘love’ or ‘trust’ hormone because of the sense of warmth and safety it’s associated with - and which is particularly active among mothers in the first few months after giving birth. Studies have looked at the role of oxytocin in social situations and found that those with higher oxytocin will trust more often than others, they’re not just making logical choices for their own benefit.

Emotions aren’t a leftover from the evolutionary process but an effective and sophisticated tool for balancing and complementing our rational side. In the end, it is the feeling and thinking person who has the advantage, not the person who relies on thought alone.

So in business, and in the workplace, it’s important for this need for balance to be reflected in management development and training, and in day-to-day understanding and treatment of colleagues. The ideal employee isn’t a Vulcan, but a feeling and emotional human who takes into account both the benefits and threats of the interplay involved.

Why collective bonuses work better than giving rewards to individuals

Continental Airlines was on the verge of bankruptcy in the 1990s. A key issue was the number of delayed flights, the “on-time” performance levels, leading to a poor reputation among regular travellers. The CEO introduced a new programme, “Go Forward”, which involved a simple deal: every employee - from the cleaners up to the board - would receive an extra $65 every month that United was in the top five for on-time performance. Within two years the company had reversed a huge loss into a $60 million profit. Staff weren’t working necessarily for the additional money for themselves, but to ensure that their peers didn’t lose out, a communal sense of needing to secure the cash for each other. No-one wanted to be the weakest link that held up any aspect of the flight turnaround times. Within a single year, Continental went from a $619 million loss to a $224 million profit. 

Why managers shouldn’t devalue gut feelings

Managers need to understand people as a fundamental basis of their work - at both an everyday tactical level and for developing a vision and strategy. It’s when we are affected by empathy that we are more capable of recognising things that are hidden from us than if we try to use pure rationality. We need to have a grasp on the motives and feelings of others. Emotions can also make those relationships more difficult - making us feel hostility when we meet people who we perceive to be different from ourselves. This is why it’s so important to appreciate how we invoke both rationality and our emotions when making decisions. In this context, rationality allows us to analyse our emotions and gives us answers to the question of why we feel a certain way. And it allows us to be critical when we’re judging our own emotions. We know that the types of decisions that cause the most intensive collaborations between rationality and emotions are ethical or moral considerations, making particular use of the part of the brain called the prefrontal cortex, associated with personality and organising emotions.

How fear governs investor choices

It’s said that non-professional investors make mistakes because they don’t have the same logical understanding of the complexities of finance systems. But that’s not true; professionals make the same kinds of mistakes, because they both experience the same emotions when making investment choices. One famous phenomenon is the way in which investors are reluctant to sell stocks at any kind of loss, and wait until it turns to profit, even when the loss may be increasing over time. The ruling factor is the fear of feeling regret. For as long as they don’t sell there is no regret, it’s postponed. Similarly, ‘herd behaviour’ among investors; they believe other people have special knowledge - a feeling of safety in a crowd - if the choice is a bad one, it’s bad for everyone, not just me. It’s an instance of when people should be aware of the negative effects of an emotion and a need to behave more rationally.

Why getting angry can make you a better negotiator

Emotions can create an advantage in negotiation situations: anger allows you to walk out. Even though it might be humiliating and it might be bad for you financially, you do it because of the strength of the emotion. An experiment at the University of California took two groups of people into a lab. Given a sum of money and the chance to negotiate over how it was shared out. One group was made angry, making them re-live experiences that had recently annoyed them. They made the most money. Another study that I co-authored revealed that our inclination to become angered grows in situations in which we can benefit from anger. In other words, there is logic in emotion and often emotion in logic.

How we feel literally disgusted by low offers

Researchers in economics and psychology have increasingly been using magnetic imaging of the brain in recent years to map brain activity while decisions are being made. The specific regions of the brain that are being used at any given moment are identified using measurements of oxygen consumption. In one study it was discovered that extremely low offers involved in a bargaining game triggered activity in parts of the brain associated with disgust and the vomit reflex. The sense of disgust that accompanies our reactions to insulting offers is possibly part of a mechanism that has evolved to protect us from being exploited for the future. In short, it seems, people are literally disgusted by unfair behaviour. Do we really want to use reason to talk ourselves into accepting it? 

Why trusting strangers appears essential for economic growth

In research carried out in 1997, thousands of individuals in dozens of countries were asked to rate their trust in people they did not know well, ranging from their car mechanic and primary care physician to government officials responsible for public services. One finding pointed to a strong link between the trust people are willing to give to strangers and the GDP of the country in which they live. So countries with high levels of trust in strangers have correspondingly higher GDPs. The implication is that trust is an engine of cooperation between individuals. Cooperation, in turn, is an engine of economic growth and social welfare. 

Why overconfidence isn’t always a good thing

Looking at the behaviours of stock market investors over several years, University of California researchers found that overconfidence was leading to losses. They studied specific decisions around the sales of stock A in order to use proceeds to buy stock B. An investor should rationally undertake such a transaction only if he or she predicts that the performance of stock B will outpace that of stock A. But the data showed that on average each transaction led to a loss of 3 percent. Taking into account transaction fees and other overhead costs, the cumulative losses were even greater. Evidence suggested this was caused by being too active, too confident in their ability to predict increases in the value of stocks. Recently an Israeli newspaper ran an experiment with five investment managers competing against a “monkey” (actually basic computer software that just picked stocks at random). The monkey came second - again because its level of activity was limited while the highly-paid human investors competed to out-perform each other.

Eyal Winter is a professor of economics, specialising in game theory and behavioural economics. A Humboldt Prize winner, he recently joined Lancaster University from the Hebrew University of Jerusalem, where he was Director of the Centre for the Study of Rationality. 

His book, Feeling Smart: Why Our Emotions Are More Rational Than We Think, was published in 2015 by Public Affairs (www.publicaffairsbooks.com). 

Since its release, Feeling Smart has attracted endorsements from eight Nobel laureates in economics, and in addition to the English version, has been published in German, French, Chinese, Japanese, Turkish and Hebrew.

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