Emotions and Investment decision making

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A Research Project onEmotions and their Effect on Investment Decision Making

[Research Methodology]

Shaheed Sukhdev College of Business StudiesUniversity of Delhi

Itulung Kauring 13218Ridhi Gupta 13238 Rahul Abujam 13222

Acknowledgement

Through this project we have acquired invaluable knowledge about how to carry out a business research with all the necessary steps and make a research project report.

For the same, we express our sincere thanks to Maam Amrina Kausar, who has given us thorough knowledge about research methodology throughout the semester and guided us throughout this project.

Lastly, we would like to thank our friends and family for their invaluable support.

Table of Contents

Executive Summary1Problem definition3Literature review5Hypothesis7Experimental Protocol11Experiment Design A:11Results13Conclusion15Experiment Design B17Results18Conclusion20Analysis22Theoretical Implications23Managerial implications25Limitations and Future Research Directions28Conclusion30Bibliography31

Executive Summary

This paper surveys the research on the influence of investor feelings on investments and also develops a theoretical basis with which to understand the emerging findings in this area. The theoretical basis is developed with reference to research in the fields of economic psychology and decision making. Recent advancements in understanding how feelings affect the general decision making of individuals, especially under conditions of risk and uncertainty are covered by the review. The theoretical bases is applied to analyze the existing research on investor feelings. This research can be broadly described as investigation whether variations in feelings that are widely experienced by people influence investor decision making and consequently lead to predictable patterns in investments. The paper concludes by leaving a number of directions for future empirical and theoretical research.

In this research, experiments have been carried out to test the response of participants under different emotions. Contrary to the popular belief that feelings are generally bad for decision making, we found that individuals who experienced more intense feelings achieved higher decision making performance. Moreover, individuals who were better able to identify and distinguish among their current feelings achieved higher decision making performance via their enhanced ability to control the possible biases induced by those feelings. This study extends previous research on emotions and decision making in three ways.

First, it provides direct empirical evidence regarding how feelings influence decision making performance in a high fidelity simulation that simultaneously captures the aspects of psychological realism and benefits of experiments.

Second, we examine contrasting perspective in the literature- the potentially functional and dysfunctional roles of feelings in decision making- in a single study design.

Finally, this study demonstrates that the degree to which affective feelings are functional or dysfunctional for decision making varies considerably between individuals in a predictable way. In this research, we use feelings as a broad term referring to various affective states including mood, viewed as a prolonged and diffuse affective state associated with no particular object and discrete emotions, viewed as intense prototypical affective experiences directed towards certain objects, such as anger and fear.

Problem definition

Although few would deny that emotions have some influence on judgment and decision making in financial markets, the market impacts may not be substantial. With the aim of investigating this, several studies have empirically attempted to determine effects of mood proxies, that is, factors that are known or believed to induce positive or negative mood in people. In some early studies below average returns in equity markets were shown to correlate with cloudy weather possibly leading to a negative mood, geomagnetic storms presumably causing depression, the full moon phase of the lunar cycle associated with depressed mood, and lower temperatures believed to increase aggressive risk taking that results in above average returns. Below average returns due to season have also been observed presumably due to shorter daylight hours. Other studies have attempted to show negative effects of disruption in sleep patterns dependent on daylight savings time changes.

Two studies, including several mood proxies related to weather and bio rhythm replicated some of the previous results. In reviewing these and other findings, note that mood misattribution is a possible causal mechanism. A criticism is that only mood proxies have been studied, with little or no attempt to measure investors moods directly. This leaves such empirical studies open to critique that claims the reported results are explained by other factors. Such studies thus concludes that changes in investors moods associated with seasonal affective disorder directly influence stock market returns.

Another emotion influence on prices in financial markets is investor sentiment depending on widespread moods in a society. Social moods are the outcomes of interpersonal communication and would in general be adaptive. Examples include optimism or hope about the future or pessimism about and fear for the future. In particular investors buying and selling decisions in asset markets may easily be influenced by such optimism or pessimism, as suggested by excessive price volatility. Other research has investigated emotion effects by directly targeting investors responses. In semi structured interviews of investors found emotion and cognition to be inextricably linked in the in investors investment decisions.

The question they asked was therefore whether there were more or less effective strategies of managing emotions. The answer was that in high performing investors regulated emotions better than low performing investors, in particular by avoiding being influenced by negative emotions. It was also found that experience improved efficient emotion regulation. Another observation was that high performing experienced investors were less influenced by (eg: weather-related) mood not being relevant for their decisions.

Literature review

A recent research argues that the emotions and feelings experienced at the time of making a decision often propel behavior in directions that are different from that dictated by a weighing of the long term costs and benefits of disparate actions.

The literature on emotions and decision making points towards two contrasting perspectives regarding the role of affective experience in decision making. The first, which we call feeling as bias inducer, suggests that individuals feelings induce various forms of bias into the decision making process that skew their decisions in certain ways. In this view, feelings can be harmful to decision making performance. There are several ways that affective feelings can bias decision making. First, feelings can affect the content of information received in the brain during decision making. Second, feelings can directly color cognitive judgments required for decision making. Numerous studies have shown that momentary feelings influence various social judgment. For example, one general effect, the mood congruence judgment effect, is that people tend to make judgments that are consistent with their affective states at the time of judgments. A third body of research suggests that affective feelings can directly bias individual choices. For example studies have shown that intense unpleasant feelings often lead people to favor short term enhancements, focusing on what is best in the moment, regardless of possibly negative long term consequences.

Other researchers have proposed afeeling-as-decision-facilitatorview. That is, affective feelings can improve decision-making performance by facilitating and even enabling decision-making processes. Researchers have identified several ways though which feelings can facilitate decision making. First, scholars from several disciplines have suggested that affective reaction is a core driver of conscious attention and allocation of working memory, both of which are necessary for the extensive cognitive processes involved in decision making. Second, feelings can facilitate the decision-making processes involved in selecting and prioritizing choices relevant to situational requirements.

One of the common dilemmas a decision maker faces is that potentially infinite factors and options surround every decision, each with conflicting advantages and disadvantages, making it extremely difficult or even impossible to make an optimal decision within a given time frame. Pleasant and unpleasant feelings can help decision makers to resolve this dilemma by invoking distinguishable frames of mind that in turn enable and facilitate their selectively attending to and efficiently prioritizing cues in terms of their relevance to the adaptive requirements in a given situation. Finally, considerable evidence exists that momentary feelings influence how people process information during decision making, which in turn promotes decision-making effectiveness in particular contexts. For example, people in pleasant affective states tend to categorize stimuli in a broader, more inclusive, and more flexible fashion which often enhances creativity and performance on complex tasks. In contrast, people in unpleasant affective states tend to engage in more effortful, systematic, piecemeal information processing which leads to effective decision making when decisions require accurate, unbiased, and realistic judgments or systematic execution of a structured decision protocol.

Hypothesis

A number of scholars have found that individuals differ in how they regulate their affective experience and its broader consequences in their judgments, choices, and behaviors.

Individuals constantly engage in two types of affective information processing modes in a temporal sequence. One is open, constructive processing (called substantive processing) in which people process both affective and non-affective information extensively and in an open-ended fashion. However, they are generally unaware of their current feeling states and their possibly bias-inducing influences and thus experience extensive and direct infusion of their affective feelings into their judgments and choices (e.g., mood congruence judgment). The other kind of processing (called motivated processing) is a more controlled, directed information-processing strategy in which the bias-inducing effects generally disappear or are reversed as people become aware of and actively manage their affective experience. The judgments and choices of individuals high in affective influence regulation are less likely to be influenced by their affective feelings during decision making. The feeling-as-bias-inducer perspective discussed above would suggest that such individuals are likely to achieve higher performance in most decision-making tasks in which decision makers accurate and unbiased judgments in given situations are the primary determinant of decision performance, because their decisions will be more protected from the possible biases induced by their feelings. In contrast, individuals low in affective influence regulation may perform worse than others in decision making, because their current feelings constantly influence their judgments and choices to greater degrees. These judgments and choices in turn hinder them from basing decisions on an accurate mental representation of reality.

Therefore, we hypothesize that affective influence regulation is positively related to decision-making performance:Hypothesis 1: Individuals higher, rather than lower, in affective influence regulation achieve higher decision making performance.

A number of researchers have suggested that individuals differ in how they respond to various affective cues in their environments. For example, some people are more reactive to negative environmental cues than to positive ones. Some people react with more intense feelings to both pleasant and unpleasant events in their lives. In this study, we focus on a general dimension of affective reactivity often called affect intensity or emotional intensity, defined as the magnitude of affective feelings experienced during decision making. By definition, individuals with higher affective reactivity are likely to experience more intense feelings during decision making. According to the feeling-as-decision-facilitator perspective, intense feelings experienced during decision making may facilitate the cognitive processes involved in decision making. Intensity of feelings (activation), regardless of whether they are pleasant or unpleasant, may generate a sense of energy or urgency for action that leads people to devote a greater amount of effort to a given task and that this effect can occur without their conscious awareness and control. An increase in effort generated by intense feelings in turn may lead to better decision performance to the extent that performance is effort-dependent. Therefore, we hypothesize that affective reactivity may be positively related to decision-making performance:Hypothesis 2: Individuals higher, rather than lower, in affective reactivity during decision making achieve higher decision making performance.

Although affective influence regulation and affective reactivity are mutually distinct individual characteristics, they may not influence decision-making performance in a purely independent fashion if their underlying processesthe bias-generating effect of feeling and the intensity of experienced feelingare systematically related to each other within individuals. At least to the extent that affective intensity is systematically associated with decision-making biases, affective reactivity may influence decision-making performance in interaction with affective influence regulation. More specifically, affective reactivity may more strongly facilitate decision-making performance for those individuals who are higher in affective influence regulation, since they can better regulate any bias-generating effects that arise during decision making. In addition, since the association is still partial, the interaction effect may not completely replace the main effects of affective influence regulation and affective reactivity on decision-making performance.

Thus, we hypothesize a moderating effect of affective influence regulation on the relationship between affective reactivity and decision-making performance in addition to the two main effects:Hypothesis 3: The relationship between affective reactivity and decision making performance is stronger for those individuals who are higher, rather than lower, in affective influence regulation.

From a practical standpoint, a great deal of uncertainty remains regarding what individuals should do to better regulate the influence of their affective feelings on decision making, even if scientific evidence supports our hypothesis that greater affective influence regulation will lead to higher decision-making performance. Here we propose a way to reduce the uncertainty and, in doing so, we contradict the popular prescriptions and organizational practices that encourage people to ignore or suppress their feelings to better regulate their affective influence. Accordingly, we hypothesize that emotion differentiation is positively related to affective influence regulation.

Specifically, individuals who are more attentive to and better able to identify and distinguish among their current affective statesinstead of ignoring them or viewing them globallyare likely to better regulate the possibly bias-generating effects of their affective feelings during decision making. As a result, more emotionally differentiated individuals will achieve higher decision-making performance via their enhanced ability to regulate their affective influence on their decisions.

This argument leads us to further hypothesize that affective influence regulation mediates the relationship between emotion differentiation and decision-making performance:Hypothesis 4: Affective influence regulation mediates the relationship between emotion differentiation and decision making performance.

Experimental Protocol

Experiment Design A:

Multiple groups of people are selected which fit into this category: Indian residents Age group: 30-40 years Currently employed Middle class tax bracket Current financial situation: Stable Absence of unreasonable debt/loan

30% of the selected people are shown various video clips that are funny or calming. Basically an overall relaxed and happy sensation has to be instilled in this group. We will represent this group as GROUP A1.

The next 30% of the people are shown videos depicting war brutalities and murders. Videos showing road rage and domestic violence can also be used. The motive behind the same is to anger the members of the group. To make them somewhat unsettled. This group can be represented as GROUP A2.

The remaining 40% of the people act as the control group and have not been shown any videos. Their emotions have not been stimulated. This group will be represented by GROUP B. We assume that this group is not overly happy or angry.

Then, each person is separately asked a question.

The question If given Rs. 10 lakh and only these options, where would you invest in? (Returns to be claimed after a period of 10 years)

Option A. Gold (medium) Option B. Stocks (risky) Option C. Mutual funds (risky) Option D. Fixed Deposits (safe)

(Only one option can be selected.)

Results

130 people were selected to participate in this experiment. They were divided into Groups A1, A2 and B as follows:Group A1 39 peopleGroup A2 39 peopleGroup B 52 people

The answers selected by Group A1 were as follows:

26 People : Gold7 People : Stocks6 People : Fixed Deposits

The answers selected by Group A2 were as follows:22 People : Mutual Funds11 People : Stocks6 People : Gold

The answers selected by Group B were as follows:30 People: Fixed Deposits17 People: Gold5 People: Stocks

Conclusion

Members of Group A1 were stimulated in such a way that they were relaxed and happy. A clear majority of the people {26/39 people (66%)} chose an option that was neither safe nor risky.

Gold is termed as an investment option that has medium risk associated with it, as compared to the other options of mutual funds, fixed deposits or stocks.

Most people of GROUP A1 chose an investment option that had medium risk associated with it. Other choices made belong to the risky and safe category equally, more or less. Conclusion is that calm and happy people take calculated investment decisions with moderate levels of risk. They are neither rash nor risk averse.

Members of Group A2 were stimulated in such a way that they were unsettled and angry. 22/39 people (56%)} chose an option that was extremely risky (Mutual funds). 11/39 people (28%) also chose the risky option of investing in stocks.Stocks and Mutual Funds are extremely risky investment options as compared to the other options of fixed deposits and gold.

Most people of GROUP A1 chose an investment option that had high risk associated with it. Conclusion is that angry and unsettled people take rash and riskier investment decisions.

Members of Group B were NOT stimulated in any way. 30/52 people (57%)} chose an option that was extremely safe (Fixed Deposits). 17/52 people (32%) chose the moderately risky option of investing in Gold.

Very few people invested in risky options.

Most people of GROUP B chose an investment option that was either very safe or moderately risky. Conclusion here is that people with no particularly elevated levels of emotion take safe investment decisions.

Experiment Design B

Multiple groups of people are selected who fit into the following category. Age group: 25-40 years Studied mathematics till 12th standard Middle class tax bracket Current financial situation: stable No history of gambling Absence of unreasonable debt/loan

Participants were given Rs.100 at the beginning of a 10-round gambling game. At the beginning of each round, the participants were asked if they wanted to risk Rs.10 on a coin toss. Those that said no kept their money. Those that agreed to participate earned Rs.25 if they won the coin toss, but had to give up their Rs.10 if they lost. Everyone then proceeded to the next round, in which the same steps were repeated.The participants were divided into 3 groups: A, B and C.Group A was first told to write down their happiest memories before the commencement of the game. The purpose of asking them to do this is to put them in a happy and relaxed state of mind.Group B on the other hand was told to write down their most negative experience before the commencement of the game. The purpose of making them do this is to put them in an agitated and unsettled state of mind.Group C was not made to do any such thing. They were simply made to play the game. The purpose of this group is to act as the control group.

Results

58 people were selected to participate in this experiment. The following is the breakup of how they were divided into the 3 groups.

Group A 19 peopleGroup B 19 peopleGroup C 20 people

Group AParticipants in group A invested in 84% of the rounds, earning an average of Rs.127.Group BParticipants in group B invested in just 58% of the rounds, earning an average of Rs.105Group CParticipants in group C behaved in a way similar to participants in group A with the participants investing in 80% of the rounds earning an average of Rs.122.

Conclusion

From a logical standpoint, the right thing to do while playing such a game is to invest in every round. With a 50-50 chance of winning, the expected value of playing each round was Rs.12.5, while the expected value of not playing was just Rs.10. Keeping this in mind, it is interesting to note the behavior of the participants in the different groups.

Group A participants were first made to write down their happiest memories in order to put them in a good mood. The results after playing the game show that their choices were the most logical as they invested in 84% of the rounds (the highest among the 3 groups).

Group B participants who were made to write down their most negative experience showed the least logical behavior as they invested in only 58% of the rounds. This seems to indicate that being in an unsettled state of mind made them make choices which were not the most logically consistent. Fear seems to have played a large role in the risk-avoidance behavior of this group.

Group C participants who were not made to write down anything and were in a normal state of mind made decisions which were similar to participants in group A with investments in 80% rounds.

What was especially interesting was that all the players started out in roughly the same place: investing Rs.10 rather than withholding it. But over time, the agitated and unsettled participants grew more cautious, declining to play almost as often as agreeing to risk Rs.10 on the coin toss. They were reacting emotionally to the outcome of the previous round. If they lost money, they got scared and had the tendency to fall back and decline to play further. Thus, the participants in relaxed and normal emotional states of mind made decisions which were the most logically consistent. On the other hand, participants in an agitated or unsettled state of mind made decisions which were not the best.

This study is especially relevant because of a concept called the "equity premium puzzle" that has long bemused financial experts. The term refers to the large number of individuals who prefer to invest in bonds rather than stocks, even though stocks have historically provided a much higher rate of return. There is widespread evidence that when the stock market starts to decline, people shift their retirement savings that is, their long-term, not short-term, investments from stocks to bonds. Whereas all research suggests that, even after taking into account fluctuations in the market, overall people are better off investing in stocks in the long term. Investors are not behaving in their own best financial interest. Something is going on that can't be explained logically. Such an illogical phenomenon can be better understood when viewed in light of the fact that people make decisions emotionally and that people tend to have a herd mentality in making such decisions.

Analysis

Going contrary to the popular belief that the cooler head prevails, the results of this study make it evident that feelings and emotions experienced during decision making can have positive effects on decision-making performance. In this study, people with hot headsthose who experienced their feelings with greater intensity during decision makingachieved higher decision-making performance. This result also provides direct counterevidence torecent finding that feelings can lead to suboptimal financial decision making in a narrowly defined situation (when the expected gain is greater than the expected loss). Consistently with another popular belief, Dont let your emotions run your life, however, we found that individuals who better kept their feelings from having direct impacts on their decisions achieved higher decision-making performance.

This result confirms the dominant view in the literature on affect and decision making that affective experiences produce various biases in judgments and choices that must be properly regulated to enhance decision-making performance. Yet the popular prescription for successful emotion regulation, Ignore your emotions, appears, in view of our results, not to be the right answer for effective regulation of feelings and their influence on decision making. Instead, the results suggest exactly the opposite: individuals who better understood what was going on with their feelings during decision making and thus reported them in a more specific and differentiated fashion were more successful in regulating the feelings influence on decision making and, as a result, achieved higher investment returns.

Theoretical Implications

Our findings extend previous research on affect and decision making in three ways. First, this study extends the decision making literature, which has generally ignored the role of affective feelings or, at best, focused only on their bias-inducing role. This study suggests that both feelings and the ways people handle them during decision making have important consequences for decision-making outcomes. In particular, the results showed a strong support for an alternative view that feelings and emotions can enable and facilitate decision-making processes. This area has been relatively understudied in decision making research.

Second, past studies on affect and decision making have been fragmented in the sense that they have focused on either the functional role of affective experience or its dysfunctional role. This study provides integrative evidence that both the functional and dysfunctional effects of affective feelings on decision making operate simultaneously within individuals, as the results showed that affective influence regulation and affective reactivity independently, but not interactively, influenced decision-making performance. Our additional finding that affective influence regulation and affective reactivity were virtually uncorrelated further explains the underlying reason: experiencing feelings (a functional process) and doing something with those feelings (a dysfunctional process) may be mutually independent within an individual. These results offer strong empirical support for a broader and integrative perspective on individual difference in affective information processing that provides an important theoretical basis for moving beyond simplistic views on whether affective feelings are functional or dysfunctional to decision making. Instead, it helps researchers to explore and examine how various individual-level characteristics (skills, traits, and abilities) create differences in how people experience and handle their affective feelings during decision making, thus ultimately determining their decision-making performance.

Third, this study may also contribute to the literature on emotional intelligence, ones ability to monitor ones own and others feelings and emotions, to discriminate among them and to use this information to guide ones thinking and actions. In spite of the excitement regarding the heuristic value of emotional intelligence, however, there have been few rigorous scientific investigations regarding the underlying psychological components and processes that constitute it. This study provides empirical evidence that emotion differentiation and affective influence regulation are two essential process components of emotional intelligence that positively influence individual performance outcomes.

One additional finding in this study that also has an important theoretical implication is that people achieved the benefit of successful affective influence regulation from understanding and differentiating among their current negative feelings, but not from differentiating among positive feelings. This result was consistent with the study that negative emotion differentiation, not positive emotion differentiation, led to greater self-regulation of emotions. One explanation for these results is that the adaptive pressure to respond to and actively regulate feelings is greater for negative feelings than for positive feelings. Thus, when people experience their current negative feelings as qualitatively distinctive, they are more likely to actively regulate such feelings and their possibly negative consequences, whereas they can be less responsive to positive feelings, regardless of whether they experience those positive feelings as fully differentiated or undifferentiated feeling states.

Managerial implications

There are two ways in which the findings of this study challenge the dominant view in managerial discourse and practice that feelings are potentially dangerous factors hindering effective decision making and thus must be suppressed or constrained in organizations.

First, our findings suggest that affective experiences have the potential to both facilitate and hinder decision making within individuals and to do so simultaneously. The problem of the dominant view and related managerial practice is not that they are entirely wrong, but that they are attempts to minimize the potentially negative effects of peoples feelings together with all of the potentially positive effects, such as enhanced decision efficiency, engagement, and creativitythus throwing the baby out with the bath water. Second, and also contrary to the dominant view, participants who were more ignorant about and thus less able to identify their specific feeling states at the moment of decision making performed worse in this study by being influenced more by the feelings that they ignored. Instead, better performers were more attentive to their current feeling states and better able to describe them clearly during decision making. In particular, the better performers could better distinguish among their negative feeling states, where the press for affective regulation is greatest.

Our study informs an alternative approach organizations could take to feelings. This approach would be to foster managers and employees experiencing and expressing their moods and emotions to maximize the positive outcomes of those feelings, and simultaneously help them minimize the feelings potential negative impacts. This approach is similar to bounded emotionality but speaks more directly to productivity issues than to employee well-being. More specifically, to foster experiencing and expressing various feelings and emotions in organizations, managers and leaders may need to carefully reexamine common beliefs, norms, languages, and practices that devalue, discourage, and constrain experiencing and expressing feelings. They should actively remove such cognitive, normative, and behavioral barriers in their organizations, which might involve a tremendous amount of reeducation and unlearning. We hope the findings of this study can be used as legitimate bases for business leaders and managers initiating such reeducation and unlearning.

However, a more challenging issue is how to minimize the possibly negative influences of affective feelings, once affective experience and expression became more encouraged and less constrained in workplaces. This study suggests one particular way in which managers and employees can reduce the possibly bias-generating effects of their current affective states (and thus increase decision-making performance). That is, they might increase the degree to which they attend to and clearly differentiate among their current affective states during decision making. This can be achieved by conducting frequent self-audits of current feelings during decision makingasking oneself, for instance, How am I feeling right now? and trying to precisely describe current feelings and understand why they are being experienced.

Employees and managers might also attempt to increase their general levels of emotional self-awareness. To do this, they might need to acquire richer categorical knowledge of different emotional states (e.g., describing diverse distinctive feeling states), their underlying meanings (e.g., when those feelings are experienced and what people tend to think and do when they are experiencing those feelings), and the relationships of the states with each other (e.g., how feeling nervous is similar to and different from feeling afraid, sad, excited, calm, and so forth). Managers and employees could then use such enhanced knowledge in describing their current feelings clearly and in a well-differentiated fashion (e.g., being able to say I am feeling angry as opposed to I am feeling bad). Our findings place particular emphasis on developing managers and employees ability to describe and differentiate negative feelings during decision making. Such differentiation and expression may require a completely different set of abilities or skills from those required to differentiate positive feelings (negative emotion differentiation was uncorrelated with positive emotion differentiation in this study).

Limitations and Future Research Directions

Additional research is needed to address limitations of this study and to advance understanding of the role of affective feelings in decision making. First, this study was based on a correlational research design, which makes it impossible to determine the precise causal directions among the key variables. Supplemental studies with experimental designs in which affective feelings are experimentally induced in participants are needed for this determination of causality. Second, we measured three individual characteristics of affective information processing in this studynamely, affective reactivity, emotion differentiation, and affective influence regulationby directly computing scores from participants investment decisions. This is a strength of this study, since the measurements did not rely on participants perceptions of their affective characteristics, which have been found to be quite different from their actual affective characteristics. The flip side of the strength is that these measures are too domain-specific to effectively capture participants general affective characteristics and/or may not be reliably replicated in other studies or research contexts. In addition, calculations were based on certain untested assumptions (e.g., linearity and equal variance), which could have compromised our results. Thus, a better approach future studies could adopt would be to use both the objective measures and some other subjective measures of similar affective characteristics, such as the emotional clarity scales. Third, although feelings are a booster for short-term memory capacity, they also constitute salient information that takes up short-term memory capacity. As a result, extremely intense feelings can substantially absorb and thus directly interfere with an individuals short-term memory capacity or ability to attend, which might hurt decision-making performance. Thus, the relationship between affective intensity and decision-making performance may be nonlinear (taking an inverted U-shape), and future research needs to determine the precise relationship.Fourth, our focus in this study is the effects of affective experience, which is consciously accessible and describable, on decision-making performance. However, affective processes include both conscious and subconscious processesand the latter may have suppressed or amplified our study results. Exploring both the conscious and subconscious processes of affective information processing and its effects on decision-making performance seems a valuable future research direction.

Conclusion

Feelings are an indispensable part of peoples individual and organizational lives and, more importantly, powerful entities that can both benefit and harm choices and decisions. Yet the popular approach has predominantly focused on understanding and minimizing the dysfunctional aspects of feelings. This study not only suggests that whether they are actually beneficial or harmful to decisions may largely depend upon how people experience, treat, and use their feelings during decision making, but also points to an alternative approach in which both functional and dysfunctional effects of feelings are equally acknowledged and simultaneously managed to maximize their positive effects and minimize their negative effects. We invite more scholarly investigation of this alternative approach and the ways in which it can be applied to various individual and organizational practices.

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