This document discusses emotions and heuristics. Regarding emotions, it defines emotions based on six key features - cognitive antecedents, intentional objects, physiological arousal, physiological expressions, valence, and action tendencies. It differentiates emotions from other mental states like moods. Regarding heuristics, it explains that heuristics are mental shortcuts used to simplify decision making. They allow for faster decisions in situations with uncertainty. Common types of heuristics include reflexive autonomic heuristics and more effortful cognitive heuristics. Heuristics can approximate optimal decisions when resources are limited.

1. Emotion

2. Introduction
 Television and print reporters commonly attribute the decisions
people make to emotions.
 The financial press, in particular, relies on emotion to explain
the movements of financial markets, both up and down.
 But, we really do not know that much about how emotions
interact with behavioral influences and other emotions to
produce human actions and decisions.
 Even less is known about how the interactions of innately
emotional people produce market outcomes.
 Six observable features allow us to differentiate emotions from
other mental states people experience, like moods.
 Whether our brain controls our emotions, or vice versa, is
important for us to understand because as financial decision-
makers we want to know how to control (or even put to good
use) our emotional responses.

3. SUBSTANCE OF EMOTION
 Psychologists generally agree that such states as
happiness, sadness, anger, interest, contempt, disgust, pride, fea
r, surprise, and regret are emotions. We can each create our own
list of emotions, but we cannot differentiate emotions from other
mental states.
 Although no features are unique to emotions, Jon Elster argues
that six observable features allow us to define an emotion:
1. Cognitive antecedents
2. Intentional objects
3. Physiological arousal
4. Physiological expressions
5. Valence
6. Action tendencies

4. Cognitive antecedents
 In most cases, beliefs trigger an emotional response. For
example, you become angry when another driver runs a red
light and almost causes a collision because you believe the
other driver is driving carelessly and has endangered your life.
 Notice how this emotion differs from hunger, another bodily
state that arises because your stomach is empty. Though
hunger may be triggered by a belief (such as “it is noon so I
must be hungry for lunch”), it is generally triggered by a
sensory signal (such as an empty feeling or growling), rather
than a thought.
 Of course the distinction is not perfect, but it is generally
understood that beliefs are important in the generation of
emotions.

5. Intentional objects
 Emotions are about something like a person or situation. For
example, you are angry with the driver who ran the light. In most
cases, the object of the emotion is closely related to the belief
that triggered the emotion. You are angry with the driver of the
other car because he is reckless.
 Also note that the distinction between an emotion and a mood is
important.
 An emotion is about something, whereas a mood is a general
feeling that does not focus on anything in particular.
 You are angry with the reckless driver, but you may also have
been in a depressed mood, in general, if you suffered from
depression.

6. Physiological arousal
 Hormonal and nervous system changes accompany emotional
responses. Your body actually goes through hormonal
changes when you experience an emotion.
 During the near collision, you might feel your blood pressure
rising.

7. Physiological expressions
 Emotions can be characterized by observable expressions
that are associated with how a person functions.
 You may express your anger at the other driver by raising your
voice or shaking your fist in his direction.
 Though some physiological responses are functional, others
simply result from the situation.
 For example, an angry person’s red face results from
increased blood flow, but does not necessarily assist the
person in resolving the problem.
 Many physical expressions associated with emotions are
consistently observed characteristics.
 For example, if you saw a person with a red face and clenched
fists, you might guess that he was angry.

8. Contd…
 Notice, also, that the expressions are not necessarily unique
and can result from very different emotions.
 A red face is also associated with embarrassment or feelings
of shame. In addition to an angry reaction, a person might also
clench his fists in a time of celebration or joy.

9. Valence
 Emotions can be rated on a scale with a neutral point in the
center and positive and negative feelings on the endpoints.
 Valence is a psychological term that is used to rate feelings of
pleasure and pain or happiness and unhappiness. You are
feeling very negative toward the other driver.
 In many cases, emotions that are highly stimulating are also at
the positive or negative endpoints for feelings. Notice that we
can’t always assume that strong emotions are at the endpoints
(or vice versa).
 For example, one author’s teenage daughter sometimes
reports very strong feelings of boredom, an emotion low on
valence.

10. Action tendencies
 Emotions are linked to action tendencies. When you experience
an emotion, you often feel an urge to act a certain way.
 In some cases, you might even feel compelled to take action.
You may have an impulse to follow the reckless driver and give
him a piece of your mind.
 Or, you might modify the initial urge to action and simply drive
away, while carefully watching other drivers on your way home.
This regulation of your action tendency can result with or without
conscious choice.
 Your body might actually automatically inhibit your reaction. At
the same time, social forces restraint you in.
 For example, you might decide against chasing the reckless
driver and telling him exactly what you think of him because you
realize that others will see a seemingly out-of-control response.

11.  Together, the six features just described help us define what
an emotion is and differentiate emotions from other mental
states.
 Notice that many emotions can be regarded as negative
(anger, contempt, disgust, fear, and sadness).
Historically, researchers in psychology have focused on
negative emotions. Positive emotions, such as
happiness, have received much less attention.

12. Mood vs Emotion
 It is equally important to understand what an emotion is not. As
mentioned previously, mood is distinct from emotion.
 Like emotions, moods usually have positive or negative
valence, but, unlike emotions, moods tend to persist for long
periods of time.
 In addition, emotions and moods are distinct in that emotions
arise in relation to an object or stimulus, whereas a mood is a
general feeling not focusing on any particular item.
 In contrast to emotions and moods is affect, or how a person
experiences a feeling. A person’s affective assessment is the
experience a person has in response to a stimulus. Affect is
evaluative in that a person can say whether a stimulus is good
or bad, positive or negative.

13.  Note that although affect reflects an evaluation, it does not
require (or preclude) a cognitive response. For example, you
might think that a rose smells good but not really be able to
cognitively evaluate why it smells good to you. We think of
emotional processes as including affective reactions.

14. Heuristics

15. INTRODUCTION
 Heuristics, often referred to as rules of thumb, are means of
reducing the search necessary to find a solution to a problem.
 They are shortcuts that simplify the complex methods of
assessing the probabilities and values ordinarily required to
make judgments, and eliminate the need for extensive
calculation.
 Heuristics provide subjectively compelling approaches and
reflect the fact that people’s assessments of likelihood and risk
do not usually conform precisely to the laws of probability.
 People tend to relate probability not to events, but to
descriptions of events. Although people may use heuristics to
simplify preferences or data sets, heuristics are best viewed
as devices for simplifying the process of choosing between
alternatives.
 Heuristics become particularly important in the presence of
uncertainty, which undermines the usefulness of complex
logical calculations.

16. RATIONALE FOR HEURISTICS
There are many reasons for using heuristics.
 Decision makers may be unaware of the optimal way to solve
a problem, even when an ideal solution exists. Moreover, they
may not have the resources (or the access to credit) to obtain
help from others, or the deliberation costs involved may be
excessive.
 Decision makers may be unable to obtain all the information
necessary for an optimizing solution, or may not be able to do
so by the time a decision must be made. Even if they can
obtain all the information, decision makers may be unable to
complete the optimization calculations in time.
 While optimization techniques may be feasible, they may not
yet have been devised for some types of problems.

17. Contd…
 Where there are multiple objectives, unique, optimal solutions
are unlikely.
 The use of rules of thumb that decision makers can rapidly apply
may enable them to keep certain matters secret until they decide
to make the decision known.
 The problem may not lie in obtaining the information, but in
perceiving it correctly and avoiding attempts to deal with what is
actually a variant of the matter under consideration.
 An extraordinary amount of information may overwhelm decision
makers.
 A decision maker may have insufficient familiarity with the
programs necessary to process the data. In addition, the
emotional character of the decision (or the decision maker) might
be overwhelming, at least in the context in question. Finally, the
state of awareness of decision makers at the time in question or
the particular framing of the problem may pose issues.

18.  Seemingly winning formulas of some market participants may
induce decision makers who ordinarily make full calculations
to stray from that course, even if only temporarily.
Unfortunately, those seemingly winning formulas may involve
so much additional risk and uncertainty that they are
unwarranted by traditional rational considerations.
 The use of heuristics may be advisable if implementation of
what is calculated presents major problems.
 The use of heuristics may be the only reasonable approach in
cases of appreciable uncertainty.
 The use of heuristic shortcuts is most appropriate where they
closely approximate the result of optimization calculations.

19. Types
 Heuristics come in all shapes and sizes. One dichotomy
is between those heuristics that are
reflexive, autonomic, and non cognitive, and economize
on effort (Type 1); and others, which are cognitive in
nature (Type 2).
 Type 1 heuristics are appropriate when a very quick
decision must be made or when the stakes are low (“I
choose a burger over a pizza because I usually prefer
them”).
 Type 2 heuristics are more effortful and are appropriate
when the stakes are higher.
 In some cases, an initial reaction using a Type 1 heuristic
can be overruled or supported using a Type 2 heuristic
(“No, I will choose the pizza today because it is prepared
a bit differently and I like to try new things”).

20. Autonomic
 If you hear a loud sound while walking down the street, your
tendency is to move away from it until examination and analysis can
be undertaken. There is no thought here: command-and-control is
entirely in the primitive emotional recesses of the brain. After a
second, of course, you take a look around and ascertain whether the
sound is a threat (if a gunshot, let’s move even farther away) or an
item of curiosity (if a human cannonball at a carnival, let’s take a
closer look).
 Another example is in the kitchen. If you look into the refrigerator and
an item of food emits an odor that you are not exactly familiar
with, the obvious reaction is to dispose of the food. There is a
reasonable probability that you might become sick if you eat it. The
reader will likely agree that both the “move away from the loud
sound” and the “avoid eating food with an unfamiliar odor” heuristics
make eminently good sense, and there is no difficulty in seeing how
these shortcuts have contributed to man’s survival.