Emotion and Decision Quality: Mood, Pressure and How Sentiment Spreads

Mood is a background state with no object. Because it is about nothing in particular, it gets attached to whatever is being judged at the time, and the judgement moves although nothing about the thing being judged has changed. Pressure narrows the options that get examined at all, and a state spreads between people faster than the reasons for it do.

All of this rests on one small mechanism with a name: misattributionAssigning a feeling to the wrong cause, usually whatever happens to be nearest to hand.. A mind that feels something goes looking for a cause, and the nearest candidate is whatever it is already thinking about. A state carried in from somewhere else therefore lands on a decision it has nothing to do with, and almost nobody experiences the state as a state at all: from the inside it presents as a fact about the holding. Watching for a strong feeling will not catch this. The effect is strongest when the feeling is mild enough to be beneath notice.

What is mood, as distinct from a feeling about a particular holding?

Two different things are at work, and telling them apart comes first. A feeling about a particular holding has an object. A statement is read, a view forms, the view carries a warmth or a wariness, and that warmth is about the thing in front of the person judging. The warmth arrived with the holding and it points at the holding. MoodA background emotional state that is not about anything in particular. is different in one specific way: it has no object. Mood is not about anything. The state was there before the decision arrived and it will still be there after the decision is taken.

The case is clearest outside finance. Somebody slept badly, the bus was late, and a colleague was short with them at nine in the morning. By eleven none of that is remembered, but the flatness has not gone anywhere. Then a colleague hands them a proposal. The flatness has no cause left to point to, so the proposal is the only candidate in the room, and the proposal is what the flatness ends up being about. Nothing dramatic happened. Nobody decided to be unfair to the proposal. Nothing else was left for the state to point at, so the proposal is what it settled on.

The reason this distinction earns a section of its own is that the two things need different corrections. A feeling attached to a particular holding can be checked against the holding: the evidence that produced the warmth can be named and examined. A background stateHow somebody feels before the decision in front of them is considered at all. cannot be checked that way. There is no evidence to go back to. The state did not come from the holding, so examining the holding harder will never find it.

How does a feeling with no cause end up finding one?

Norbert Schwarz and Gerald Clore, writing in the Journal of Personality and Social Psychology in 1983, set out the mechanism that the rest of this guide runs on. Their contribution was to show that people use how they currently feel as information about whatever they are being asked to judge, and that they stop doing so once the real source of the feeling is pointed out to them. The paper is the origin of the idea now called misattribution, and it is the reason a state is treated here as a source of information filed under the wrong heading rather than as a distortion of thinking.

The shape is always the same and it has four steps. A state arrives from somewhere with no connection to the decision. A mind does not tolerate a feeling with no cause for very long, so it looks for one. The nearest candidate is whatever is currently occupying attention, and at this moment that is the thing being judged. And then the state stops being a state: it is now a fact about the holding, filed as one, and defended as one if anybody argues. By the time the judgement is made, the state has been converted into evidence, and it is no longer available for inspection as a state at all.

How does a background state change a judgement it has nothing to do with?

The effect is hard to accept until it has been watched happening. The judgement moves, and the thing being judged does not. Two people asked how likely a favourable outcome is for a holding neither of them has ever heard of, handed the identical description, give answers that come apart. Neither person is guessing wildly and neither is being careless. A judgement of likelihood under genuine uncertainty has to be assembled from something, and how a person feels while assembling it is one of the materials. Two people reading the same words therefore arrive at different numbers.

The finance version was examined by David Hirshleifer and Tyler Shumway in Good Day Sunshine, published in the Journal of Finance in 2003. The choice of variable is what makes the paper decisive: they looked at something that has no connection whatsoever to any holding, any statement or any item of information, and asked whether decisions came out differently alongside it. An incidentalComing from somewhere other than the decision being made. condition of that kind cannot possibly be evidence about anything, and that is exactly what makes it worth measuring. If a condition with no informational content at all sits alongside how decisions come out, then something other than the information is entering the decision. The finding describes a record of decisions already taken, and a record reports what happened rather than what to do next.

What does Stress do to the range of options considered?

Pressure does something different from mood, and mixing the two is the commonest confusion in this material. StressThe state produced by pressure, which narrows what gets considered. does not tilt a judgement in one direction. Stress changes how many things get looked at before the judgement is made. Under pressure the consideration setThe options actually examined, as against those available., meaning the options actually examined rather than the options available, gets smaller. Fewer candidates are pulled in, the first workable one is worked on, and the rest are never opened.

The everyday version is a household with one salary, an unexpected repair bill and four days to pay it. There are perhaps nine ways to find the money: the reserve, a small loan from a relative, a delay negotiated with the workshop, a partial payment, a card, a personal loan, selling something, an advance against salary, or doing without the vehicle for a month. Under four days of pressure, three of those nine get examined. The three that get examined are usually reasoned about carefully. Six options never came to mind at all, and because they never came to mind, they never appear in the argument, in the record or in the recollection.

Meera Sundaram, in the invented case this section works from, puts Rs 25,000/- a month into a standing instruction, keeps a reserve of two months and carries a stated goal eleven years out. When a decision arrives against a deadline, the deadline does not make her arithmetic wrong. The deadline makes the list shorter. A shortened list is a different failure from a wrong calculation, and it needs a different check.

Why does stress shorten the reasoning rather than spoil it?

Because narrowing is what pressure is for. A state that made every step of thinking slightly worse would be a design fault with nothing to recommend it. A state that cuts the number of candidates down and pushes hard on the survivors is a reasonable response to a real deadline, and it is often the right one. Somebody running from a fire who considers nine exits has already lost. Narrowing is not a malfunction, so it does not feel like one, and it fires just as readily in situations where the deadline is imaginary.

The distinction decides where the damage gets looked for, and is worth sitting with. If pressure spoiled reasoning, the error would sit inside the argument: a wrong sum, a step skipped, a claim that does not follow. A search there turns up nothing, every time. The argument is sound because the argument really was made carefully, and the entire defect sits in a list of options that was never written down because it was never assembled.

What is Emotional Contagion, and how does a state move between people?

Elaine Hatfield, John Cacioppo and Richard Rapson set out the mechanism in Emotional Contagion, published in 1994. Their account is that people catch states from each other automatically and without intending to, through the ordinary business of being in a room together: expression, posture, pace of speech, how long a pause runs. Emotional contagionA state spreading between people without the reasons for it spreading. is the name for that transfer. Notice what is absent from the description. Nobody has to observe anybody making a choice, nobody has to be persuaded, and nobody has to agree with anything.

The absence of all three is the whole reason contagion belongs with states rather than with copying. Copying a decision requires seeing the decision. Catching a state requires only being present. A room can arrive at a shared state without a single argument having been exchanged, and every person in it will then judge whatever comes next against that shared state, having never once discussed it.

The same thing happens at a scale anybody can feel. A wedding of two hundred people has a state, and it is not the sum of two hundred separately reasoned positions about the wedding. The state moved through the room. Nobody circulated a document. If a decision has to be taken in that room, it is taken by two hundred people in one state, and afterwards each of them will explain their part of it in their own words and every explanation will sound like reasoning.

Why does the state travel faster than the reasons for it?

Because the two travel by different means. A state moves at the speed of a conversation, and it needs no content: a tone of voice carries it in the first six seconds and the listener has caught it before any claim has been evaluated. The reasons move at the speed of writing something down, sending it, and somebody reading it. The two speeds are not the same, and they are not close.

The consequence is a gap that opens every time and closes slowly. In the middle of it, a group holds a shared state and no shared argument. Everybody in that gap, asked why they feel as they do, has an answer, and the answers will not match. Each person has constructed their own by exactly the misattribution route drawn above. A shared state with no shared argument beneath it is the ordinary condition of any group that has been talking, and it is not the same thing as agreement.

What does the decision log show about speed and written reasons?

Now set the mechanism against numbers that were recorded rather than argued. The Palash decision log is an invented record of 240 decisions taken by 60 investors across eight quarters, made up of 96 buys, 84 sells, 36 switches and 24 pauses of a standing instruction, and those four counts sum to 240. Two of its measurements matter here and they should be recomputed rather than taken on trust. 71 of the 240 decisions were taken within 48 hours of a news item, and 71 divided by 240 is 0.29583, or 29.6 per cent. A written reason of any kind was recorded on 84 of the 240, and 84 divided by 240 is exactly 0.35, or 35.0 per cent.

Read the second one from the other side and it lands harder. If 84 decisions carried a written reason, then 240 less 84, being 156 decisions and 65.0 per cent of the log, carried none. Nearly two thirds of the decisions in the record have nothing written down about why they were taken, and roughly three in ten were taken inside two days of something appearing in the news. The two measurements describe the same gap from opposite sides: speed and recording pull against each other, so the decisions most likely to have been taken while a state was running are the very decisions with the least written about them.

An honest reading of the log separates from a convenient one at exactly this point, so be precise about what the log settles and what it leaves open. The log reports the two shares separately and does not cross them, so it does not say how many of the 71 fast decisions were among the 84 recorded ones. The overlap could be anything from none to all 71. The arithmetic settles one thing with certainty: 156 decisions carried no written reason and only 71 decisions were taken quickly, so at least 156 less 71, being 85 decisions, went unrecorded with no news item near them at all. Speed is one route to an unrecorded decision. Speed is plainly not the only one.

One more locked figure sets the scale of the trigger. In the same invented record, 11.0 per cent of the eligible list is mentioned in the news at all in a given week, so for any particular holding a mention is an uncommon event rather than a weekly one. Set the two together and 71 decisions out of 240, being 29.6 per cent, is a large share of a log attached to an event that reaches roughly one holding in nine in any given week. The share of 29.6 per cent is a statement about when decisions were taken, not a statement about why.

One entry in the same log shows the speed without settling anything about the cause. On 19 February a television segment named Suvarna Chemicals Limited, and Meera Sundaram added Rs 1,00,000/- to that position the same evening, taking its cost to Rs 4,00,000/-. The log records the interval, and the interval is hours. The log does not record what state she was in while she did it, and no log ever kept could recover it. The limit is not a weakness of this particular record. It is the permanent condition of the subject.

Why is this the hardest mechanism here to notice in yourself?

Every other mechanism in this material leaves something behind that can be gone back to and looked at. A number fixed on is still written down. A resemblance judged by can be restated and tested. A state leaves nothing, for the reason drawn in the four step figure above: by the time anybody looks, it has been converted into a fact about the holding, and it is that fact introspection finds. An honest question about whether a state is present comes back with the honest answer no, the holding really does look weak today.

There is a second difficulty stacked on the first. The strength of the effect is not proportional to the strength of the feeling. A strong feeling announces itself and gets discounted: fury is obvious to the person feeling it, so the call gets postponed. A mild flatness announces nothing and gets used as information without ever being noticed. A state has to be beneath notice in order to be mistaken for evidence, so the states that do the most damage to a judgement are precisely the mild ones nobody would think to mention. Mildness is also the reason no written account can establish whether a state is present at any given moment.

What can actually be done about it?

Not much through willpower, and everything through sequence. A state cannot be inspected directly. The inspection is exactly what the mechanism defeats. The state can instead be separated from the decision in time, and one question gets at that while needing no self knowledge whatsoever: did anything about the holding change today. The question is about the world rather than about the person asking it, and that is exactly why it works when introspection does not.

The question has only two branches. If something did change, then there is new material and the reasoning has something real to work on. If nothing changed, then the holding is the same holding it was yesterday, and something else moved. The person deciding is what moved. The decision can then wait a day, and waiting a day is available to everybody, costs nothing in most circumstances, and requires no adviser, no committee and no view about anything. None of this amounts to a rule that acting is right in one state and wrong in another.

How does an adviser or a person deciding alone use this in practice?

Devika Rao, the adviser at the invented Palash Advisory Services Private Limited, cannot ask a client how they feel and expect a usable answer, for every reason set out above. She can instead build the separation into the shape of the conversation. She takes the reason for the decision in writing before any instruction is discussed, and that forces the question about the world to be answered first. She reads back what changed, in the client's own words, and if the answer contains nothing about the holding then the answer contains the finding. And she watches her own state before a run of client conversations, not because she can inspect it, but because she knows a state she has caught in one meeting will be present in the next four.

A person deciding alone, with no adviser and no committee, has the same instrument in a cheaper form: one line written before acting, saying what changed today and where it was read. A line that names something checkable is a decision with material behind it. A line that reads better on second thoughts, or a line that cannot be written at all, says something about the state rather than about the holding. The written line is not paperwork. Asking about the world, and being checkable by somebody outside the state, is what lets a written line work from inside one.

Meera Sundaram, Devika Rao, Palash Advisory Services Private Limited, the Palash decision log and Suvarna Chemicals Limited are invented.
Educational material. Not advice on any investment, tax, budget or market position.