It is common to contrast emotions with rationality (usually in tandem with proclaiming the superiority of reason over emotion). Take for example this post on the changingminds blog. It is also the claim at the heart of Ayn Rand’s morally barren apologia for the extremes of modern capitalism, ‘Atlas Shrugged‘. In this book she claims that:
“Happiness is not to be achieved at the command of emotional whims . . . Happiness is possible only to a rational man, the man who desires nothing but rational goals, seeks nothing but rational values and finds his joy in nothing but rational actions”
Economists too, commonly either discount emotions or treat them simply as a component of the future utility of a rational choice.
Psychologists have often perpetuated this split and have, until recently, tended to study reason and emotions as entirely separate phenomena. However, during the last two decades, evidence has been building that human reason and emotion are inextricably linked. In an article published in the Annual Review of Psychology, the distinguished neuroscientist Elisabeth Phelps notes that
“Investigations into the neural systems underlying human behaviour demonstrate that the mechanisms of emotion and cognition are intertwined from early perception to reasoning. These ﬁndings suggest that the classic division between the study of emotion and cognition may be unrealistic and that an understanding of human cognition requires the consideration of emotion.”
If Phelps is right and separating emotions from reason is a lost cause, does this mean that humans are doomed to irrationality? Actually, there is good evidence that our emotions can often be a useful tool in making rational choices and in taking effective action. Work by Antonio Damascio, Antoine Bechara and others shows that in many cases our emotional responses to information can lead us to the right conclusions more rapidly than our reasoning. There is evidence too that patients with damage to the areas of the brain responsible for emotion do fine in intelligence tests in the lab but are incapable of everyday decision-making. I caught up with Antoine Bechara at a neuroeconomics conference we both attended and asked him about emotions and decision-making. You can listen to the interview in the audioclip below.
So how can emotions act as an instrument of rational choice? Let’s take a simple example. Emotions direct attention. Pause for a moment to pay attention to all of the sensory data you are receiving right now. The hum of your computer, a reflection in the corner of the screen. The feel of your clothes on your skin and so on. We get so much information from our environment that we cannot process it all. Our emotions direct attention.
Now imagine you are driving to work on a familiar route. You have a passenger you are chatting to, music is playing on the radio and you are driving pretty much automatically as you chat. Then suddenly a small child runs in front of your car.
You experience a surge of fear and adrenalin and all of your cognitive and physical resources are focused on one simple goal – avoid hitting that child. Your emotional reaction is what enables your rapid action to avoid harming the child. Similarly in in the fast moving and high stakes world of financial trading, emotions come into play. In the audio track below a financial trader talks about experiencing fear during the 2008 financial crisis.
A trader’s perspective
Here, as in the car, fear plays an important role rapidly directing attention to important information and cuing action.
Emotions can of course also mislead us (just like our other thinking processes). It is all too easy to carry emotions from one situation into another. A common problem for traders is the tendency for emotions from a loss or gain on one trade to carry over and affect later trades. A big loss for example may trigger an increased willingness to bear risk to “win the loss back”.
However, effective regulation of emotions does not mean eliminating them. First, it is not possible and suppressed emotions may affect behaviour even more powerfully. Second, we risk losing access to the important signals emotions carry. We need, instead, to develop skill in recognizing the ebb and flow of our emotions and develop a critical appreciation of the role they play; recognizing that like most of the tools we deploy in making rational decisions they have both strengths and weaknesses.