March 10, 2017
Financial Decisions – Logic, Emotion, or Both?
We all like to think that we use a certain amount of logic – although some more than others – especially when it comes to making decisions that have a serious impact on our future (like our finances).
It is probably fair to say that when people make decisions it is heavily based on value, specifically monetarily. We are constantly talking about, “How we can find value?” or, “How we can create value?” or, “What can we do that will makes us more valuable?” All these different uses of the word ‘value’ confuse me, every time it is mentioned there is a different definition. If what I value is logical and what you value is logical, then why are they different?
Maybe it has something to do with the fact that we value things that we care about and we care about things that we are emotionally attached to.
With all the research done today that involves emotion and choices, it is hard to ignore that emotion drives decision-making. It is almost as if this idea of logic is something we made up to hide the fact that emotions are heavily involved in how we come to decisions. Sometimes I think we forget that emotions also involve things like joy, happiness, elation, and satisfaction – as opposed to the negative emotions like sadness, fear and loneliness, which are what makes the word emotion almost insulting, especially as it relates to the business world. If you referred to someone as passionate as opposed to emotional they would be extremely flattered. But, what is the difference between those?
The Huffington Post has a great article that discusses how emotional intelligence (EQ) improves decision-making. It goes on to say that with a tremendous amount of EQ you still make decisions based on emotion; you just do a better job of removing the emotions that have nothing to do with the decision itself. Jim Camp, author of Start with No wrote a great article called “Decisions Are Emotional, not Logical: The Neuroscience behind Decision Making.” In the article, he discusses the importance of emotions to make good decisions. As he mentions you can find many instances of people who have damaged the part of their brain where emotions are housed; while they can still pass as healthy, they no longer have the ability to make decisions, or at least good ones. (For example, the story of Phineas Gage.) In a Psychology Today article by PhD Mary C. Lamia called “Like it or Not, Emotions Will Drive the Decisions You Make Today” she also refers to the effect emotions have on decisions. The information regarding the relationship between emotion and decision is all around us.
At its foundation, financial decision-making is an information gathering process: if you do not gather the information that helps you to understand your underlying emotional drivers, you are going to have a lot of trouble making headway. Have you have ever been faced with constructing that perfect argument/objection/position in a decision backed by facts and data?
You can overcome these challenges with the proper execution of empathy, good preparation, personal understanding, and surrounding yourself with a good team that has your best interest in mind. We at Gainplan think we can help!
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