LO3 - Emotions and Intuition in Decision Making

• EMOTIONS AND MAKING CHOICES

  Emotions affect the evaluation of alternatives in three ways.

  1. Emotions Form Early Preferences
  2. Emotions Change the Decision Evaluation Process
  3. Emotions Serve as Information When We Evaluate Alternatives
• emotions as information


  This refers to the idea that we listen in on our

  emotions to acquire guidance when making choices.
• Intuition


  Ability to know when a problem or opportunity exists and to select the best course of action without conscious reasoning.
• Intuition 


  is both an emotional experience and a rapid nonconscious analytic process.
• Intuition as emotional experience:​


  • Gut feelings are emotional signals.​
  • Not all emotional signals are intuition.
• Intuition as rapid nonconscious analysis:​


  • Uses action scripts.
• Intuition


  an emotional experience (gut feeling) and a process in which we compare the current situation with well-established templates of the mind.
• Making Choices More Effectively​


  1. Systematically evaluate alternatives against relevant factors (don’t be too decisive).​
  2. Revisit decisions later when emotions/moods have changed.​
  3. Scenario planning.
• scenario planning


  A systematic process of thinking about alternative futures and what the organization should do to anticipate and react
• decision makers engage in confirmation bias to support

  their implicit favourite and to maintain consistency in their

  preference and decision.
• Confirmation bias


  Also know as postdecisional justification
• Confirmation bias (postdecisional justification)


  • Underweight negative outcomes of the preference.​
  • Inflates valence of the selected alternative.
• Escalation of commitment


  the tendency to repeat an apparently bad decision or allocate more resources to a failing course of action.
• Causes of escalation:

  • Self-justification effect.​
  • Self-enhancement effect.​
  • Prospect theory effect.​
  • Sunk costs effect.
• Self-Justification Effect

  • typically involves appearing to be rational and competent.
  • Decision makers are therefore motivated to demonstrate that their choices will be successful, which includes continuing to support a decision even when it is not having the desired outcomes.
• Self-Enhancement 


  A person’s inherent motivation to have a positive self-concept (and to have others perceive them favourably), such as being competent, attractive, lucky, ethical, and important.
• Self-justification 


  is a deliberate attempt to maintain a favourable public image.
• self-enhancement 


  nonconsciously distorts our perceptions so problems are recognized later, and our probabilities of success are biased so we continue to invest in the losing project.
• Prospect Theory Effect


  tendency to feel stronger negative emotion from

  losing a particular amount than positive emotion from

  gaining an equal amount.
• Prospect Theory Effect


  This is also known as loss aversion
• Sunk Costs Effect


  the value of resources already invested in the decision.
• Improving Decision Evaluation (Several strategies have been identified to minimize escalation of commitment and postdecisional justification.​)


  1. Change the decision maker.​
  2. Create a stop-loss.​
  3. Seek factual and social feedback.​
  4. Change the decision-maker’s mindset.
• Change the decision maker


  Decision evaluation biases are often minimized when those who made the original decision are replaced by those who later evaluate and act on that evaluation.
• Create a stop-loss


  Publicly establishing a preset level at which the decision is abandoned or re-evaluated forces the decision maker to abandon the investment if its value falls or cost overruns increase beyond a set level.
• Seek factual and social feedback


  At some point, even the strongest escalation and confirmation bias effects collapse when the decision maker is faced with systematic and clear feedback about the project’s failings.
• Change the decision-maker’s mindset


  There is growing evidence that decision makers are less likely to engage in escalation of commitment if they change their mindset regarding the situation.