The Effect of Affect on Economic and Strategic Decision Making

22 Pages Posted: 11 Jan 2000

See all articles by Benjamin E. Hermalin

Benjamin E. Hermalin

University of California, Berkeley

Alice M. Isen

Cornell University - Samuel Curtis Johnson Graduate School of Management; Cornell University -- Psychology Department

Date Written: July 28, 2000

Abstract

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive affect, has a significant effect on decision making. This paper offers a way to incorporate this insight from psychology into economic modeling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors.

Keywords: Affect, morale, emotion.

JEL Classification: B41, D99, C70, C73, D81

Suggested Citation

Hermalin, Benjamin E. and Isen, Alice M., The Effect of Affect on Economic and Strategic Decision Making (July 28, 2000). Available at SSRN: https://ssrn.com/abstract=200295 or http://dx.doi.org/10.2139/ssrn.200295

Benjamin E. Hermalin (Contact Author)

University of California, Berkeley ( email )

545 Student Services Building, #1900
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Berkeley, CA 94720
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510-642-7575 (Phone)
510-643-1420 (Fax)

Alice M. Isen

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

359 Sage Hall
Ithaca, NY 14853
United States
607-255-4687 (Phone)

Cornell University -- Psychology Department ( email )

Ithaca, NY 14853
United States

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