Organizational BehaviorPeer-Reviewed Research

Mood Swing

Emotions impact decision making
  • Passing moods and deep emotions are both integral to the quality of our decisions.
  • Affect – the moods and emotions that are experienced – drive decision making
  • Regret is a powerful factor in confronting potentially difficult decisions.

You’re a senior executive and you have to make a major decision. What’s your mood? The answer wields more power than you may guess.

The emotional environment surrounding business decisions is usually dynamic, and often turbulent. By its very nature, decision-making in large organizations is a messy, complicated and ambiguous process. In this whirl of activity, emotional states can affect decisions even more dramatically than the decision-maker may know. Whether he or she realizes it or not, emotions ranging from rage to pleasure at someone else’s discomfort can indirectly lead to huge financial gain or devastating loss.

In a recent study, Rice Business Professors Jennifer M. George and Erik Dane analyzed the scientific literature showing how emotion and mood – i.e. how an individual feels – influence decision-making.

Let’s say, for example, you are one happy executive. Cheerful people make the best decisions, right? Not necessarily, George and Dane found. Research suggests that happy people believe positive outcomes are more likely than negative ones. So cheerful decision-makers often overestimate the likelihood of a positive outcome and underestimate the chance of a negative one. And that’s not necessarily a happy thing.

In a study of foreign exchange traders, for example, participants who were in a good mood were overall less accurate in their decision-making, lost money and took unnecessary risks compared to both those in a control condition and those in a bad mood.

Another widespread assumption: the more complex a situation, the more thoroughly an executive conducts research prior to making a choice. But moods can also affect how we engage and understand research. George and Dane found that decision-makers in a negative frame of mind tend to be more focused when facing a high-risk situation. Decision-makers who feel more upbeat tend to be less focused in their information search.

Anger, on the other hand, can undermine good decisions. People who experience anger, the researchers found, are prone to take greater risks. Anger can, though, work wonders in helping to evaluate others, especially when those evaluations are less than positive.

Some of the most anti-social emotions, in fact, may bolster good decision-making. According to two studies, schadenfreude, or “feelings of malicious joy at the misfortunes of others,” prompted subjects to make more practical choices than they did when feeling happiness or sadness.

And in many cases, mood and decision-making are circular. Consider a manager forced to choose between two very bad product options. In one study from 2000, people were asked to choose between two low-quality alternatives, one of them lower-priced and the other a somewhat better product, though still low quality. Facing two miserable choices made the subjects so despondent that they chose the higher-quality option – but simply as a response to emotion.

The role of regret in decision-making has inspired especially broad research. In some cases regret surges even before a decision is made. In other cases it’s a consequence of the decision process itself.

Either way, regret can have profound implications in the business world. Let’s say that a manager is faced with a series of difficult choices. Research suggests that people feel more regret over a choice that goes bad than over making no choice at all. Acting on this dynamic, the hypothetical manager may delay important choices until it is too late to make a difference.

While the role of emotion in decision-making is vast, George and Dane note that it’s also under-researched. For the business world, more study is needed on the role of emotion in complex business environments. Far from being frivolous, emotion, it turns out, is the quiet engine powering every choice we make – not to mention those choices that others make to hurt or help us.

Jennifer M. George is a professor at Jones Graduate School of Business and the Department of Psychology at Rice University. Erik Dane is a professor at Jones Graduate School of Business at Rice University.

To learn more, please see: George, J.M., & Dane, E. (2016). Affect, emotion, and decision makingOrganizational Behavior and Human Decision Processes, 136, 47–55.