GEORGE LOEWENSTEIN & J ELSTER

Feelings/ Emotions & Decision Making

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1 Channel Many Channels

What do you Choose?

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5 Jams 24 Jams/ Shelf full

What do you Choose?

Source: The Art of Choosing – Sheena Iyengar

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5 Jams 24 Jams/ Shelf full

What do you Choose?

Source: The Art of Choosing – Sheena Iyengar

Regret

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Silver Medal Bronze Medal

What do you Choose?

Source: The Paradox of Choice – Barry Schwartz

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NOBEL PRIZE - 1978

SATISFICING

BOUNDED RATIONALITY

LIMITATIONS OF- TIME- KNOWLEDGE- COGNITIVE CAPABILITIES

The Carnegie School

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ORGANIZATIONS – SIMON & MARCH (1958) - ROUTINES - ROLE OF INDUCEMENTS - CONFLICTS (BREAK-DOWN IN DM)

BEHAVIORAL THEORY OF FIRM – MARCH & CYERT (1963)- ORG CAPABILITIES- SEARCH COSTS- PROCESS -ORIENTED MODELS

The Carnegie School

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GEORGE LOEWENSTEIN-HERBERT SIMON PROF OF ECO & PSYCH

- PHD IN ECONOMICS (YALE)

- RESEARCH INTERESTS- Intersection of Economics/

Psychology- Inter-temporal choice in Economics- Visceral States- Negotiations/ Impasse

The Carnegie School

9

GEORGE LOEWENSTEINRISKS AS FEELINGS

- ANTI CI PATORY FEELINGS

- SECTI ON I - ASSUMPTI ONS- Optimistic Vs. Pessimistic- Here & Now Vs. Forward Looking

The Carnegie School

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GEORGE LOEWENSTEINRISKS AS FEELINGS (CONTD..)- SECTI ON I I – CONDI T I ONS

- Emotions & Probability sensitivity- Inter-temporal- Vividness- Evolutionary Preparedness

- SECTI ON I I I – I MPLICATIONS- Gender studies- Age studies- Policy Implications

The Carnegie School

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JON ELSTER - NORWEGIAN SOCIAL & POLITICAL THEORIST

- Philosophy of SOCIAL SCIENCE- Rational choice theory- In recent years gone “sour on Rational

choice/ disillusioned with Power of reason”

- Recent book – Explaining social behavior

Emotions & Economic Theory

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JON ELSTER

EMOTIONS (VS. “VISCERAL FACTORS”)

- Have intentional object- Have somatic markers- Have valence (pleasure/ pain)- Have associated action tendencies- Can avoid (but at a cost!)- Can build/ plan Emotional Character

Emotions & Economic Theory

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EMOTIONS & NEUROBIOLOGY OF DECISION MAKING

- Help avoid procrastination- Help take “best” decisions- Helps deal with “addiction to reason”- Help avoid Opportunity costs - Evidence? Patients with injuries to

frontal lobes

Emotions & Economic Theory

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EMOTIONS IMPACT

- Sense of Satisfaction- Quality of Decisions- Perception of alternatives- Self-image/Self-esteem

EMOTIONS SUSCEPTIBLE TO:(SOURCE: NUDGE – THALER & SUNSTEIN)

- Peer Pressure/ conformity- Temptations- Biases & Blunders

Emotions & Economic Theory

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Choice 1 Choice 2

Acknowledge the reality that both emotions and logic have a role to play in decision making?

Acknowledge limits to human cognition, emotions, time and knowledge?

Be Satisficed?

Invest an inordinate amount of time, effort and mind space on finding the “best” outcome?

Ignore limitations of human cognition, time, etc?

Risk inordinately higher search, cognitive, emotional costs?

Be Maximized?

What do you Choose?

Which choice is more “rational”?!

“We don’t know what we don’t know” - Hayek