Influence of emotions on social decisions

Influence of emotion on social decisions

A scene on the flea market: The seller has made his last offer and it is time to make a definite decision: do you accept the offer or do you reject it?

Such final stages of negotiation situations are investigated in the laboratory using the so-called ultimatum game. In this game the proposer divides an amount of money in two parts, one part for himself and one part for the receiver. If the receiver accepts the offer, both players receive the respective amount allocated by the proposer. However, if the receiver rejects the offer, both players go away empty-handed. Unfair distributions by the proposer are especially interesting, creating a conflict for the receiver. Simple utility maximization is a reason to accept the offer, but a violation of the sense of fairness is a reason to reject it.

Classic game theory, which assumes a rational decision maker, makes clear predictions: the receiver should accept all offers, since money is always better than no money, even if it is only a small part of the overall amount. The proposer who is aware of this, will thus offer the smallest amount possible, since he can assume that the offer is being accepted. Interestingly people behave totally differently: proposers often propose half of the overall amount and receivers reject about 50% of the offers when they are offered only 20% or less of the overall amount.

Evolutionary psychology has interpreted the rejection of unfair offers as “altruistic punishment”. Accordingly people are willing to forgo own monetary benefit to punish the proposer for his unfair offer. That way behaviors resulting in a single persons benefit at the expense of the community (so called free-riding) are punished. Thus in the long run the rejection behavior of the receivers might have positive effects, for example if the proposer acts more equitably in the future. Since the rejection of an unfair offer comes with disadvantages for the receiver but also with possible advantages for the community this behavior is called unselfish or altruistic.

Recently research has been focusing on how strongly emotions affect these decisions. The results showed that angry or sad people reject more unfair offers, for example. Furthermore neuroeconomic studies showed that stronger activation in brain areas related to emotion is associated with higher rejection rates. Several results also point to the importance of brain areas involved in working memory and rule based decisions (also including rational considerations). It has been shown that a temporary deactivation of these areas leads to reduced rejection rates. Presumably conscious considerations concerning fairness are disrupted in that case.

In the context of the project "Psychological Influences on Economic Decisions" the influence of stable and temporary emotions on decisions in the ultimatum game will be investigated. Special attention will be paid to brain electrical activity following unfair offers as a psychophysiological indicator. It has been shown that unfair compared to fair offers in the ultimatum game elicit a stronger signal and one that is comparable to the signal evoked by mistakes or negative feedback. The intended studies explore the influence of emotional aspects and social interactions on this signal, which has been interpreted as an indicator of cognitive control processes in reinforcement learning. For instance, the results showed that unfair offers from a smiling proposer elicit a weaker signal compared to the same offer made by a non-smiling proposer. Future studies will further investigate this and more aspects with imaging techniques. The intended research will thus try to answer the question of how cognitive and emotional processes contribute to decision making in economic contexts.

Below are the studies that have been conducted in this area as part of the Schumpeter Fellowship: