The Role of Emotion in Economic Behavior

Economic models of decision making are consequentialist in nature; they assume that decision makers choose between alternative courses of action by assessing the desirability and likelihood of their consequences, and integrating this information through some type of expectation-based calculus. Economists refer to the desirability of an outcome as its “utility,” and decision making is depicted as a matter of maximizing utility. This does not, however, imply that consequentialist decision makers are devoid of emotion or immune to its influence. To see why, it is useful to draw a distinction between “expected” and “immediate” emotions (Loewenstein, Weber, Hsee, & Welch, 2001; Loewenstein & Lerner, 2003). Expected emotions are those that are anticipated to occur as a result of the outcomes associated with different possible courses of action. For example, if Laura, a potential investor, were deciding whether to purchase a stock, she might imagine the disappointment she would feel if she bought it and it declined in price, the elation she would experience if it increased in price, and possibly emotions such as regret and relief that she might experience if she did not purchase the stock and its price either rose or fell. The key feature of expected emotions is that they are experienced when the outcomes of a decision materialize, but not at the moment of choice, at the moment of choice they are only cognitions about future emotions. Immediate emotions, by contrast, are experienced at the moment of choice and fall into one of two categories. “Integral” emotions, like expected emotions, arise from thinking about the consequences of one’s decision, but integral emotions, unlike expected emotions, are experienced at the moment of choice. For example, in the process of deciding whether to purchase the stock, Laura might experience immediate fear at the thought of the stock’s losing value. “Incidental” emotions are also experienced at the moment of choice, but arise from dispositional or situational sources objectively unrelated to the task at hand (e.g., the TV pro-