Monday, September 17, 2007

More emotion, better decision

Reuters ran a piece a few days back under the title "Hot-headed investors make better decisions". The article covers a recent study, where 101 stock investors were monitored over a four-week trading simulation; the study concludes that

Contrary to the popular belief that the cooler head prevails, people with hot heads -- those who experienced their feelings with greater intensity during decision-making -- achieved higher decision-making performance.

After more carefully reading the piece, it turns out that the title is more than a bit misleading. defines hot-headed as

1. Easily angered; quick-tempered: a hotheaded commander.
2. Impetuous; rash: a hotheaded decision.

Based on that definition, the study does not seem to draw any relationship between hotheadedness and sound decision making. Once deflated from the (very annoying) sensationalism, the conclusions are still pretty interesting, though. Essentially, people whose emotions run high would tend to make better decisions, because they are more aware of their feelings, and have more experience dealing with it. Decision analysis as a discipline does emphasize a rational approach, precisely because important decisions are usually emotional, and to reach a clear conclusion one needs to consider carefully personal biases; but that a more emotional decision-maker may ultimately be better trained to decide, is an unexpected twist!



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