When one typically describes someone who is a successful decision-maker, adjectives like "emotional" and "hot-headed" may not initially come to mind. According to a recent study by Lisa Feldman Barrett, psychology professor at Boston College, and Myeong-Gu Seo of the University of Maryland, however, the old adage that one should "keep a cool head" when making decisions may not be true in practice.
The study found that individuals who not only experienced emotions more intensely but also could accurately interpret these feelings made better decisions. Barrett and Seo described that people experiencing pleasant emotions were able to broadly and more flexibly interpret information and therefore benefited from enhanced creativity. Even "negative" emotions could actually be beneficial, as people experiencing unpleasant emotions process information in a more deliberate way.
Conversely, people can also be adversely affected by their emotions if they cannot regulate or qualify them. Emotions create bias which, unless controlled through individuals' ability to identify their feelings, may alter their perceptions of the situation.
"At any given moment, affective experience has the potential to both help and hurt those making important decisions," Barrett and Seo said in their paper. "Whether affective feelings actually hurt or help decision making can be largely determined by how individuals experience and handle those feelings in more or less functional or dysfunctional ways."
Some fields often encourage individuals to think dispassionately and ignore their emotions completely. Although most investors typically strive to act logically and rationally when making financial decisions, some may benefit from being hotheaded.
Barrett and Seo monitored 101 stock investors for 20 days in a simulated trading exercise and found that those who experienced stronger, more distinct emotions during the simulation achieved higher investment returns.
The results demonstrated that experiencing intense feelings while making decisions may actually enhance the cognitive processes involved in decision making by heightening attention, working memory allocation, and alternative generation and selection.
Still, many feel that acting rationally and calmly is still the safest bet when making decisions, particularly in the often precarious arena of the stock market.
"Yes, it is useful to understand your emotions, but they are often misleading when it comes to making financial decisions," said Thomas Chemmanur, professor of finance, in an e-mail. "I personally find that, when it comes to serious financial decisions, keeping a cool head and deciding as rationally as possible makes for better outcomes. I advise students and friends to the same as well."
Likewise, Mike Barry, also a professor in the finance department, said that he personally found the "cool head" approach to be more successful, but he acknowledged that it is difficult to act without at least some emotional bias.
"Since no approach is perfect, I try to tell students to go with what they believe is right, whether there's an emotional component involved or if it's just a number-crunching valuation model they do," Barry said in an e-mail. "The stock market is made up of men and women who are investing. Once people are involved, I don't think we can always assume people will act perfectly rationally," he said.
Although many investors often try to make unbiased decisions not affected by emotion, Barry said that the current nature of the stock market may induce a more hotheaded approach.
"With tumultuous times in the stock market, I think we may be seeing more of an emotional component than before," Barry said. "I believe professor Feldman Barrett's findings make a lot of sense. I think a key is understanding your emotions as well as feeling them."
Barrett was also recently awarded one of the most prestigious federal grant awards for academics in the medical field - the Pioneer Award - totaling $2.5 million. Awarded by the National Institutes of Health, the grant is meant to support unconventional and risky research that has the potential for great payoffs, but also faces a higher-than-usual risk of failure and is therefore less likely to receive any kind of funding through traditional channels. She will be studying the neuroanatomy of emotions such as anger and fear, pursuing a theory that does not fit conventional models. She was one of 16 area professors to be awarded a NIH grant.
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