The Impact of Emotions on Probabilistic Decision Making A Research Proposal

Given their background as moral philosophers, classical economists were interested in passions and emotions which govern human nature. This interest in emotions had persisted in economic theory until the marginal revolution. The aim of developing a formal body of theory based on mechanical laws necessitated the adoption of a more stylized concept of utility, i.e. ordinal utility. Formal modelling sustained by an ordinal approach sought to expunge the utility construct of its emotional content (Loewenstein, 2000). Thus, modern mainstream economics is characterized by rational decision makers maximizing a given utility function under constraints. However, for a long time economists have been questioning the behavioural validity of this model of individual behaviour and seeking alternatives. Simons work and his concept of bounded rationality has remarkably influenced the evolution of economic analysis of decision making, by incorporating the cognitive dimension in the economic models. However, the emotional dimension have remained excluded. Recent contributions from neurological and psychological studies have given strong support to the idea that emotions play a constructive role in decision making. These contributions have given a new appeal to emotions even for economists. As the next section will outline, different approaches to emotions are present in the literature on decision making. Some authors perceive emotions as limitations of the cognitive process leading to choice (e.g. bounded willpower) while others see them as a support for adaptive decision making performed by bounded rational agents in complex environments.