Adaptive Rationality in Strategic Interaction: Do Emotions Regulate Thinking about Others?

37 Pages Posted: 15 Apr 2020

See all articles by Timo Ehrig

Timo Ehrig

Max Planck Institute for Mathematics in the Sciences (MPI-MIS)

Jaison Manjaly

Aditya Singh

Indian Institute of Technology Delhi; University of Mumbai - St. John College of Engineering and Management

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: April 14, 2020

Abstract

Forming beliefs or expectations about others’ behavior is fundamental to strategy, as it co-determines the outcomes of interactions in and across organizations. In the game theoretic conception of rationality, agents reason iteratively about each other to form expectations about behavior. According to prior scholarship, actual strategists fall short of this ideal, and attempts to understand the underlying cognitive processes of forming expectations about others are in their infancy. We propose that emotions help regulate iterative reasoning, that is, their tendency to not only reflect on what others think, but also on what others think about their thinking. Drawing on a controlled experiment, we find that a negative emotion (fear) deepens the tendency to engage in iterative reasoning, compared to a positive emotion (amusement). Moreover, neutral emotions yield even deeper levels of reasoning. We tentatively interpret these early findings and speculate about the broader link of emotions and expectations in the context of strategic management. Extending the view of emotional regulation as a capability, emotions may be building blocks of rational heuristics for strategic interaction and enable interactive decision-making when strategists have little experience with the environment.

Suggested Citation

Ehrig, Timo and Manjaly, Jaison and Singh, Aditya and Sunder, Shyam, Adaptive Rationality in Strategic Interaction: Do Emotions Regulate Thinking about Others? (April 14, 2020). Cowles Foundation Discussion Paper No. 2227, Available at SSRN: https://ssrn.com/abstract=3575792 or http://dx.doi.org/10.2139/ssrn.3575792

Timo Ehrig

Max Planck Institute for Mathematics in the Sciences (MPI-MIS) ( email )

Leipzig
Germany

Aditya Singh

Indian Institute of Technology Delhi ( email )

Centre for Energy Studies
Shaheed Jeet Singh Marg, Hauz Khas
New Delhi, DE 110016
India

HOME PAGE: http://www.iitd.ac.in/

University of Mumbai - St. John College of Engineering and Management ( email )

Manor Road, Near Shakti Udyog Industrial Area
Vevoor Village
Palghar, Maharashtra 401404
India

Shyam Sunder (Contact Author)

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

No contact information is available for Jaison Manjaly

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