Let's talk about the role of emotions in decision-making. If I were to tell you that people make emotional decisions, would that be shocking to you? Of course not, we've all seen it, and we've seen it maybe too much sometimes. But when I'm talking about emotions, I'm talking about emotional biases. I'm talking about things that we barely know are going on, that we're barely alert to, but despite the fact that we're not really alert to it often, it still drives our behavior and therefore it's important. I want to share with you a very famous experiment that was done by Antonio Damasio, one of the world's leading researchers in neuroscience. He created an experiment that demonstrated that really the power of emotions and decision-making. It's the famous Iowa Gambling Task Card Experiment, and then here is how it goes. Participants are seated at a table on which four decks of cards have been placed. The players are given $2,000 in play money and told that the object of the task is to make money. Some cards they're told, will give them a payout as much as 100 bucks, while others have penalty, sometimes several $100. They can choose cards from any pile. Everyone can see that, the four decks they get to choose. What the players do not know is that the gains and losses from the two decks, the bad decks are negative. While those from the other two decks, the good decks are positive. They don't know the balance of these decks. They just know that every time they draw a card, it could be a gain or a loss, but they don't know that in fact the decks been rigged so that two are good and two are bad. Each deck is different cards with different payouts and penalties. The bad decks on average offer higher payouts, but even higher penalties. If a player were to pick 10 cards in a row from a bad deck, for example, he would expect payouts of $1,000 and penalties of $1,250, leaving a net loss of $250. The players are hooked up to equipment to detect the emotional responses, such as heart rate and skin conductance. Both good measures of emotional arousal. They are also asked to talk about what they're thinking as they draw cards. You've got two things going on, well, actually three things. One is they're doing, they're picking the cards. Second is they're talking about it in real-time, what they're experiencing, what they're thinking about. Third, they've got this equipment that's really figuring out what's going on in terms of how their emotional responses are happening. At first, players draw cards randomly noting the outcomes. However, as soon as a player draws a penalty card, the emotions recorded by the electric monitors start to become active. After a few cards, it's actually possible to observe greater emotional activity when players are about to choose cards from the bad decks, even before the player makes any comments about these decks. In fact, players start to prefer the good decks and to avoid the bad decks before they're even able to articulate what they're doing or why they're doing it. They don't even know that they're doing it, but yet their behavior demonstrates that they're picking the good over the bad. The explanation for their behavior usually comes 20 or so cards after their behavior starts to change. As much as 30 cards after, their emotions are signaling that they have concerns about the bad decks. It's quite a delay. The order of their responses is as follows. First, they exhibit an emotional response to the penalty cards. Then they exhibit emotional responses whenever they are drawing from the bad decks. They then start to avoid the bad decks without being aware that they're even doing so. The process is clearly subconscious. The next thing that happens is that they begin to articulate a preference for the good decks without being able to say exactly why. They have a gut instinct. They feel there's something going on, but they don't really know why. Finally, players explain that they're avoiding the bad decks because the gains are consistently less than the penalties. They finally figure it out. From then on, they only draw from the good decks. The experiment demonstrates that our emotions are part of our decision-making process. In fact, emotions appear to lead the process, even in an exercise that is as unemotional as drawing cards from decks, we begin to react emotionally to good and bad outcomes before we are even aware that we are doing so. That's pretty cool, right? The emotional reaction happens sometime before our awareness or our consciousness catches up. It may seem odd that we can have these feelings we're not even aware of that can influence our behavior without even knowing about it. That our emotional judgments often come before our rational judgments. But you know what, this is just the way our brains are wired. Why? Well, you know why? Because it actually pays off, especially if we think about evolution and survival. Emotions speed up the reasoning process. Almost like our brains have an early warning system in place. The problem is that we're not even aware of these warnings or signals until a little bit later. But perhaps that first twitch, that quick reaction can make all the difference for survival when we can't wait to see that saber-toothed tiger coming after us before we react, and before we just analyze the situation. We need that first twitch, emotional reaction. There's no time for analysis when that happens. Our strong emotional reaction is a lifesaver, which is precisely why that trade gets passed on to the next generation, and the one after that as well. If we decide we think through the situation with a saber-toothed tiger bearing down on us, we wouldn't be around to pass our genetic profile to our children. This is evolution in action, isn't it? Whatever helps us survive is retained and therefore passed on to the next generation and the next generations after that. In the modern world, there are no saber-toothed tigers roaming around, but this system whereby emotions play such a huge role in decision-making can also lead to all sorts of problems. Ones we deal with in business and a life every day. In fact, it's often our emotional reactions that lead us to do the wrong thing before we are fully aware of it. For example, An Wang and Wang Labs that we talked about in the first course, his gut emotional reaction to IBM. No matter what it was IBM was doing, it was wrong because it was IBM and IBM was the enemy, that gut reaction and wasn't rational, it was emotional, and it ended up killing his company, because Wang Labs didn't take the PC threat, the rise of the personal computer, that threat seriously enough until it was too late. Our brains are wired for action and we call that emotional tagging. This is the system our brains use to keep track of what has helped us and what has hurt us, and to draw on these tags whenever confronted with the same or a similar situation. It's as if in our brains, we have a file cabinet. There are good things, there're happy faces on the top of some of those files and skull and cross bones on the top of some other files, and our brain automatically without us even knowing about it, picks up the relevant file because of that emotional tagging. The card players drawing from the bad deck start to exhibit nervousness, higher heart rate, sweaty palms because their brains have already tagged the bad deck with a negative emotion. An Wang's love for the word processor, his breakthrough innovation that was extremely successful. It might have caused them to feel emotionally protective towards it, it had a happy face toward it. Why enter the PC business, which surely would have spelled the end of the word processor, which of course did happen, if it generates such emotional pain? For An Wang, the negative emotional tag towards IBM, and the positive emotional tag toward his beloved word processor would have made it very difficult indeed, to enter the PC market, so he delayed and he delayed again, and in the end, the only way he could do so was by staying true to his underlying emotions, don't follow IBM, continue to innovate and create the best product yourself, independent of IBM. You can see it's not just a card deck story and an interesting experimental lab, it is really fundamental. Neuroscientists have done, probably by now, hundreds and hundreds of experiments that have reinforced the fundamental theme that I just shared with you that comes from that classic card experiment about the power of our emotions. This plays out in a lot of ways. Biases are common. We know that it leads to and can lead to discrimination and a lot of really bad behavior. Let me tell you about this crazy experiment that I had read about that really highlights how we don't even know we're applying these biases to ourselves. In this experiment, there were group of Asian women, students who in the experiment were taking a math test and they all had exactly the same test, but 1/2 of the students in their instructions included a line that said, "Asians tend to do better than most other people in math." The other half of the students in their tests had one other line, not the line I just said, a different line that said, "Women often find a math test more difficult than men." So they each were given one line, among many other lines of instructions that put in a particular signal or a trigger towards bias. Low and behold what happens? Again, everyone had exactly the same test, but those kids that were told Asians do better than others, they scored higher than the kids that were told women don't do as well as men, and this is a kind of random assignment to people all in school. The only thing they had in common is they're Asian women, but they were given this trigger in their heads, this bias. Isn't that crazy? Somehow that bias affected how they actually, not just thought, but they behave and what always happens when you do these experiments and talk about this is when the results are shared with people, they just can't believe it that they themselves have fallen into this trap. It happens in a lot less serious situations as well, what is superstition? When you believe something to be true because there's some bias in your head. No, I'm a big ice hockey fan and the classic is, during the playoffs, players grow their beards, they don't shave and the assumption is, the superstition is that that's going to actually make them successful. But if you think about it, the teams that are eliminated, they don't have their beards anymore. The fact that you have a beard doesn't have anything to do whether you're successful or not. The mere fact that you're still playing means you haven't had a chance to shave it off yet, it's crazy. I've even heard of some athletes that want to keep the same socks, which is pretty hard to imagine given what's involved in sports. Anyways, here's a giant lesson about decision-making and about life that really is one we want to pay attention to. We're guided by our emotions and not nearly as often as we'd like to think, by rational thought. Those emotions play a much bigger role in how we think and how we make decisions, but that's the way it is, and it's our job to try to recognize that that's happening as best we can so that we could try to be as successful as we can and not fall into the traps that I've just described.
