best deal for his clients. His bodytold him something was wrong before he was consciously aware of whatit was. By listening to his physical sensations (and his inability to sleep),he was able to infer an optimal strategy as events developed. He made anintuitive decision—one that he couldn’t rationally explain—that turned outto be extremely proﬁtable.
ANALYSIS AND INTUITION
Nobel Prize winner Daniel Kahneman postulates that there are two broadneural systems underlying decision making: the analytical and the intuitive.Analytical judgment is primarily logic based, while the intuitive system israpid and feeling based.
This chapter describes the process of optimal intuitive decision mak-ing in market-like conditions—risky, uncertain, and with performance ex-pectations and time pressure. If the mind is well managed, these conditionsare optimal for the ﬂourishing of intuitive decision making.
Intuitive decisions rely on “gut” knowledge. This chapter demonstrateshow listening to one’s “gut” has tremendous advantages (and potential dan-gers) for market participants.
Ancient Greek conceptualizations of emotion assumed that feelingsshould be tightly controlled, lest they disturb rational thought and delib-eration. Even today, it’s tempting to speculate that if everyone were fullyrational and analytical, the world would be better off. This idea conjuresMr. Spock, the character in the Star Trek television series who was halfVulcan. The creator of Star Trek, Gene Roddenberry, designed Vulcansas an advanced humanoid race who struggled mightily to make decisionsbased solely on logic.
In the Star Trek series, Vulcans suppressed emotional inﬂuences byliving lives of rigid self-control. Vulcans relied on meditative techniquesand mental discipline to keep feelings from inﬂuencing their judgment.But like humans, Vulcans could not entirely escape emotions in order tolive by logic, so they established elaborate rituals to channel and safelyrelease emotional and sexual energies. Vulcans periodically returned totheir home planet for a well-guarded annual rite in which they yielded
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
Intuition
69
to an all-consuming catharsis of emotion. Additionally, episodes of StarTrek routinely ended with a conciliatory vindication of human emotion asopposed to cold Vulcan logic.2
So how do humans integrate “messy” emotions and “soft” intuitions
into a rational decision-making process?
INVESTMENT PRACTICE
Traditional investment theory assumes that people use reasoning andobjective analysis during decision making. According to traditional theory,investors slowly and mechanically judge potential outcomes, weighingtheir probabilities and their potential gains or losses, to arrive at a rationalanalytical decision. They arrive at a choice after a series of calculations—a“risk-reward analysis.” Yet, in a world where ultimate outcomes are un-certain and volatility can arise unexpectedly, investment practice is not asrational as theory suggests. Currently, however, there is no single coherentpsychological theory to counter the assumption of investor rationality.
What I see in my coaching practice is professional investors followingprimarily reason-based judgment—with an important dose of intuition (gutfeel) injected just before the actual choice. Many of the best portfolio man-agers initially perform a rational analysis of known facts and ﬁgures. Theygather information from corporate management, customers, suppliers, em-ployees, and stock analysts. But in order to consolidate all this complexinformation into a single decision, they use an intuitive process. They sumup all this information by asking themselves, “Does the investment ‘feel’right?” More often than not, intuitive “gut feelings” guide some aspects ofthe research and determine the ultimate buy or sell decision.
Fortunately, the ﬁrst part of the investment decision-making processcan be controlled. Many investors deﬁne the indicators they are lookingfor in advance (called their “investment philosophy”). Once they collect thequantitative information, they perform a disciplined and objective analysisof the facts at hand. Most beginning investors ﬁx their attention on one ortwo positive or negative factors and make their decision. But often the bestinvestors go one step further. The best pay attention to and are guided bytheir feelings about certain aspects of an investment. They may be uncom-fortable with cash ﬂow volatility or off–balance-sheet transactions, so theyask their analysts to dig deeper. They may have a positive “aha” feelingabout the potential of a company’s products. Perhaps they feel that mostanalysts’ forecasts are too cautious, and they use that information to weighin favor of buy decision. However intuition comes into play, it is far morewidespread in investment practice than most theorists concede.
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
70
INSIDE THE INVESTOR’S BRAIN
WHAT DOES YOUR “GUT” TELL YOU?
The human senses relay about 10 million times more pieces of informa-tion per second to the brain than can be consciously perceived.3 How canthe brain possibly process all this data? The brain uses simpliﬁcations andshortcuts to facilitate information processing.
The vast majority of our daily decisions are intuitive decisions—decisions made rapidly, automatically, and beneath conscious awareness.Intuition and “gut feel” often underlie some of our most consequentialdecisions. Intuitive decision making is honed unconsciously, through ex-perience, and it is the foundation of more than 90 percent of all decisions.Too often, deliberately keeping track of intuition doesn’t work. Partof its grace and simplicity is that it operates subconsciously, not acceptinginput from higher cognitive levels. Thinking about a decision bringsthe process into conscious awareness, and such conscious deliberationdrowns out important aspects of the fragile intuitive process. Withoutpractice, if one consciously tries to tap intuition when making a decision,he or she usually fails.
In business, deciding from “the gut,” especially for experts, is a com-mon way of handling decisions with uncertain outcomes. “The gut” refersto an experienced and intuitive consideration of the current situation. Thisintuitive “hunch” comes to attention as a feeling, as in, “I’ve got a good feel-ing about this.” This feeling represents a subconscious emotional processthat is manifested in physical sensations.
Some business leaders credit their style of intuitive “gut” decisionswith their success. Former General Electric CEO Jack Welch even entitledhis autobiography Jack: Straight from the Gut. Outcomes in the businessworld are high stakes and inherently uncertain, an ideal environment forintegrating intuition and expert judgment.
Some experienced investors, such as George Soros, are intuitivelytuned into subtle physical cues. George Soros is a Wall Street icon for hisoutstanding long-term performance. Anyone who had invested $1,000 in hisQuantum Fund when it opened in 1969 would have realized a cumulative30-plus-percent annual return (about $4 million) by the turn of the century.Soros occasionally uses the physical cues of intuitive hunches to in-form his strategy. George Soros’s son remarked that “the reason he changeshis position on the market or whatever is because his back starts killinghim. It has nothing to do with reason. He literally goes into a spasm, and it’sthis early warning sign.”4 Soros can observe his physical sensations to aidhis decision making, much as other experts use “gut feeling” or “hunches.”Soros generates investment plans by integrating both his intellectualtheory of market action and his somatic (bodily) sensations. “According toSoros, his theory informs his decisions, and his body gives him the signals.
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
Intuition
71
The making of a self-reinforcing trend brings water to his mouth. The needfor a portfolio shift makes his back hurt. His body ‘knows’ he needs to takeaction, or to take careful note of a situation before his intellect can graspit.”5 Soros is tuned in to subtle somatic sensations reﬂecting potentialrisk and opportunity. Importantly, he does not operate solely based onintuition; rather, he utilizes his physical sensations to complement ananalytical assessment of market price action.
Trading coach Doug Hirschhorn administered the Myers-Briggs, acommon personality test, to a large group of portfolio managers. Thepersonality trait Intuition (N) was present in 80 percent of portfoliomanagers and 25 percent of analysts. This differential suggests a separateskill set. Portfolio managers were more likely than analysts to follow anintuitive decision process rather than relying on explicit data.6
Intuition isn’t always easy to follow. Sometimes strong emotionsdrown out gut feelings. Several factors generate emotions that overwhelmintuition. Feelings that result from remembering, experiencing, or antic-ipating large gains or losses will negatively bias intuitive judgment. Anyenvironments in which one is under signiﬁcant time, social, or perfor-mance pressure (such as within contentious investment committees orwhen considering one’s performance at the end of the ﬁscal year), caneasily bias intuitive judgment. Fortunately, quiet reﬂection can open oneup to the intuitive consideration of complex information.
LISTENING WITHOUT THINKING
As you’ll see in the example below, detachment from memories, expecta-tions, and current pressures facilitates the unfolding of the intuitive pro-cess. Here’s how one top hedge fund manager described his investmentdecision process. The following are my notes from our talk.
Peterson: How do you know what to invest in?Investor: I just feel a lot of information. I gather it all up and then I sit onit. Like an information sponge most of the time—really, like a sponge.I’m not trying to do anything with it [the information]. I’m not lookingfor answers, I just sit on it, and when the time is right, it comes to me. I’llfeel a little tickle that tells me to pay attention to something, like a tiny‘look at that’ kind of feeling. I don’t know what I’m looking at exactly,but I just pay some more attention to it.
Peterson: And how does that translate into action?Investor: Often without knowing why, I start planning deals. It may be tobuy shares in an Indian refrigerator manufacturer, or a pipeline, or min-eral rights in Peru. Who knows what the inkling will lead to? But that’s
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
72
INSIDE THE INVESTOR’S BRAIN
how it works. It’s like I step out of the way. I can’t have distractions, Ican’t think too much about it, or explain how I do it. I just get into thezone and I don’t get out of it until I do what the feeling is compelling meto do.
Peterson: Those are pretty diverse examples. Where do you get your “in-
telligence” about so many different industries?
Investor: The information I take in is workplace stuff—strategic and ﬁ-nancial information that my traders and analysts bring me or that I seeover the terminals. Nothing more than what everyone else is seeing, ex-cept that I’ll go, or send someone to go, to get deeper information whenI feel the need for it.
This investor is acting like an information ﬁlter, allowing his intuition andexperience to identify patterns and setups that other investors have over-looked or not yet identiﬁed. If he were to consciously think about the in-formation he is looking for in detail, then he would lose the ability to be“in the zone.” Notice that he’s maintaining mental equanimity during thisprocess. He’s not recalling past deals or thinking about how much moneyhe might make or lose. Rather, he pursues his inkling with open curiosity,which leads to a general idea, which directs him to an opportunity.
INTUITION AND EMOTION IN INVESTING
“I had no business to think because my business isto trade—that is, to stick to the facts before me andnot to what I think other people ought to do.”
—Edwin LeFevre7
In simple decision-making situations, conscious thought usually leadsto better decisions, but after a certain level of informational complexityis reached, the quality of conscious choices falls below that of affectivechoice. Feelings provide mental shortcuts, allowing people to quickly andeasily judge the “rightness” and “wrongness” of complex scenarios.8 Ac-cording to Professor Paul Slovic’s theory of the “affect heuristic,” brieﬂyintroduced in Chapter 3, decision makers usually rely on affective (emo-tional) meaning to guide judgments and decisions in everyday life. All ofthe images in a person’s mind are tagged to varying degrees with affect.The “affect pool” contains all tags that are consciously or unconsciouslyassociated with the images. Since affective information remains readilyavailable in a pool of tags, it can generate quick and easy reactions to ahost of familiar stimuli.
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
Intuition
73
Emotion, via the affect heuristic, can act as information to help formjudgments. It can serve as a generalization shortcut, allowing people torapidly sort through and integrate multiple pieces of related information.Affect can also help people focus on salient or relevant aspects of a deci-sion. Finally, affect is motivating, leading to faster and more determineddecisions.9,10
Affect is thus an essential aspect of daily decision making, where itsupports the subtle processes of intuition. Unfortunately, when affect isbiased by “special interests” (strong emotions generated by the brain’scomparator), its effects on ﬁnancial decisions can be problematic. Whenemotions are powerful, especially when produced in anticipation of, recallof, or reaction to external events, they can overwhelm intuition and neg-atively bias judgment and decision making. In order to distinguish whichaffects (emotions) are helpful and which are potentially biasing, it’s usefulto turn to the insights of psychologists who study emotional intelligence.
EMOTIONAL INTELLIGENCE
In order to harness the power of gut feel while avoiding indulgence of emo-tional “special interests,” an aptitude called “emotional intelligence” canbe developed. The study of “emotional intelligence,” pioneered by businesspsychologist Daniel Goleman, arises out of evidence that emotional compe-tencies are more conducive to business success than purely intellectual IQ.According to Goleman, emotional intelligence refers to “the capacityfor recognizing our own feelings and those of others, for motivatingourselves, and for managing emotions wellin ourselves and in ourrelationships.”11 There are ﬁve basic emotional competencies that to-intelligence: (1) self-awareness, (2)gether comprise one’s emotionalself-regulation, (3) motivation, (4) empathy, and (5) social skills. In a studyof executives at 40 companies, strength in emotional intelligence wasmore prevalent among “stars” on the job (53 percent) than intellectualintelligence (IQ) or subject expertise (27 percent).12 It is possible that highemotional intelligence correlates with investing success as well, but I amnot aware of any scientiﬁc studies on that issue.
SUBLIMINAL EMOTION
One of the skills essential to emotional intelligence is self-awareness. Ifpeople are not aware of what they are feeling, then they cannot distin-guish helpful gut feel from biasing emotions. Such subconscious emotionscan be dangerous because they alter how people think about ﬁnancial
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
74
INSIDE THE INVESTOR’S BRAIN
opportunities and risks. Furthermore, self-awareness of such emotions re-quires a high level of expertise.
Researchers have found that emotions induced by one event will colorhow we think about other, unrelated situations. Emotions induced bywatching movies, enjoying sunny weather, or experiencing stressful examshave been shown to inﬂuence judgments of unrelated topics and objects.13For example, in one experiment, participants who read happy newspa-per articles subsequently made more optimistic judgments about risk thanthose who had just read sad articles.14
Perhaps frighteningly, there is solid scientiﬁc evidence that people areoften not consciously aware of what they are feeling or its likely effecton their judgment. Professors Winkielman and Berridge, at the Universityof California–San Diego and the University of Michigan, respectively,performed a series of experiments in which participants were subliminallypresented with a happy face or an angry face and then asked to pour,consume, and value a beverage. “Subliminal smiles caused thirsty partic-ipants to pour and consume more beverage (Study 1) and increased theirwillingness to pay and their wanting more beverage (Study 2). Subliminalfrowns had the opposite effect.” Participants reported no change in theirsubjective feelings resulting from the subliminal smiling or frowningfaces.15 Yet even though they felt no different after seeing the faces, theirﬁnancial behavior changed.
STIRRING THE UNCONSCIOUS
In a study of subliminal emotion during ﬁnancially risky decisions, Profes-sors Trujillo and Knutson at Stanford University designed a study in whichsubjects decided among risky options after viewing a photo of an emo-tional face.16 The faces were expressing prominent emotions such as fear,anger, or happiness. Participants were asked to name the gender of the facebefore proceeding on to the gamble, to ensure that they had been payingattention, though they were not warned that the facial expression mightaffect their decision making.
The researchers ran three experiments in which subjects chose be-tween different risky ﬁnancial options. Interestingly, but unsurprisingly,participants were most likely to select the riskiest option after viewinghappy faces. However, after an angry or fearful face was viewed, partic-ipants were more likely to choose the safe option. There were no differ-ences between effects of anger versus fear. However, viewing an angry facedecreased the likelihood of investing on the subsequent trial.
Importantly, the faces’ emotional expressions inﬂuenced participants’decisions regardless of their performance feedback (how much money
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
Intuition
75
they made or lost). In general, positive expressions (happiness) increasedrisk taking, while negative expressions (anger and fear) decreased it. Fur-thermore, happy faces increased risk taking (when measured in terms ofpayoff variability), even when there was no advantage to be gained by tak-ing more risk. In conclusion, the researchers speculated that transient sub-conscious activations of the brain’s fear (amygdala), anger, and happiness(nucleus accumbens) processing centers biased the ability of the cortex tocorrectly value risky gambles.
Investors are probably affected by other sources of unconscious emo-tions, besides faces. The workplace mood, the tone of business newsbroadcasts, the content of the morning newspaper, and one’s home emo-tional environment may all be factors that unconsciously bias how one ap-proaches risky decisions. Even if the inﬂuence of these factors is small, a1 percent alteration in risky choice can lead to a large cumulative gain orloss over years.
This chapter has emphasized the value of intuition in expert investmentdecision making. Yet the pitfalls of overthinking, strong emotional biases,and subliminal emotions render intuitive judgment excessively biased formost investors. Experience (gained through honest appraisals and rapidfeedback) and emotional intelligence (speciﬁcally self-awareness) are theremedies that excellent investors use to fortify the intuitive process. Theemotions that bias intuition lead to characteristic ﬁnancial mistakes. Thenext chapter will describe in detail the speciﬁc effects of emotions on ﬁ-nancial judgment.
chap05
JWPR011-Peterson (JWBK010-Peterson)
May 14, 2007
20:31
Char Count=
76
chap06
JWPR011-Peterson (JWBK010-Peterson)
May 11, 2007
15:2
Char Count=
C H A P T E R 6
Money EmotionsClouded Judgment
S ometimes at social events, if I mention my occupation as “invest-
ment psychologist,” people are curious. Often, their questions aremarket related (“Where do you see the market in 12 months?”),and sometimes they are personal (“Why is my spouse so hopeless with abudget?”).
In early 2006, when Jodie heard my profession at a dinner, she asked
me defensively, “Did someone send you to talk to me?”
“Uh, no,” I answered.“Are you sure?” She said, eyeing me sideways.“Er, yeah.” I was perplexed.“Come over here. I need to talk to you.” She motioned me to a quiet
corner of the room.
“Um, okay,” I said.After some pleasant conversation, Jodie opened up. She told me thatshe’d been having nightmares about poor old people living under bridges.In many dreams she herself was destitute. When she saw commercials onTV about happy older couples in retirement, tears would come to her eyes.This had been happening for about a year, and she didn’t really understandit, but she thought she might have a clue.
“What clue is that?” I asked.“Well, I used to work at a major investment bank as a broker in thelate 1990s. We were responsible for getting retirees to buy recommendedinvestments in their private accounts. When I started in mid-1998, every-one wanted to buy Internet stocks. We’d call clients, offer a few sharesin an IPO [initial public offering], and recommend some other stocks as
77
chap06
JWPR011-Peterson (JWBK010-Peterson)
May 11, 2007
15:2
Char Count=
78
INSIDE THE INVESTOR’S BRAIN
well. They’d usually follow our advice without questioning, and they’d bemuch better off for it. In late 1999, we started offering these Internet mu-tual funds, and we would charge two points on the buy, in addition to ourregular commissions.”
“Wow, that’s huge,” I muttered.“Yeah, my boss told us that we’d be ﬁred if we couldn’t sell the fundto 80 percent of our client accounts. It was my job to persuade dozensof mostly older retirees to buy shares in the Internet fund. Some of themwanted to put all their money in it, and I let them.”
“What happened?”“I left in early 2001, when clients were calling me wondering why theiraccounts were shrinking. I told them to hold on, that things would re-cover. . . .” She paused. “I feel so rotten now. People really trusted me.”Jodie took a sip of her drink and her eyes inspected the faces in the room,as if looking for someone else to talk to.
It didn’t seem like a ﬁtting end for her story. “Then what?” I persisted.“I got my real estate license, and now I’m a real estate agent.”“No, I mean what happened with the clients and the funds?”“I don’t know, I imagine the department was shut down. I think someof the clients lost most of their retirement savings. Right before I left, oneof the clients told me that he was going to have to postpone retirement10 years based on what I’d sold him.” She studied her shoes.
“Have you talked about this before?”“No, not really—why would I?”“It seems like the whole episode scarred you pretty deeply.”She thought for a moment and then said matter-of-factly, “Yeah, I just
feel so terrible about the whole thing.”
Jodie was wracked by guilt. Some of her clients, whom she had meantto help, had to postpone retirement. She was harboring deep regrets abouther actions, and they were starting to surface in unlikely situations—shewas crying when watching retirees on television and seeing them in herdreams.
She told me she hadn’t invested in the markets at all since 2000. Allof her own retirement savings was in cash, almost as if she were payingpenance for what she had done. The worst part of the episode, for her, wasthat she had thought the bubble would burst all along—she never boughtthe “new economy” hype, and she regretted blithely selling Internet fundsto retirees when deep inside she knew the funds weren’t in their bestinterest.
Regrets and feelings of guilt can stay with people for years. The attemptto avoid them leads people to wall off associated memories. But sometimesregrets won’t be ignored, springing to the surface at inconvenient times orin unexpected ways. Jodie had never accepted and worked through her
chap06
JWPR011-Peterson (JWBK010-Peterson)
May 11, 2007
15:2
Char Count=
Money Emotions
79
experiences, so the strong associated emotions sprang up whenever shehad related experiences.
EMOTIONAL BIASES
The content of this book is treading on psychologically sensitive ground.Not only is there a social taboo around money, but there is also discomfortwhen emotion is openly discussed. Most people feel vulnerable during suchconversations because the thing being addressed, emotion, lies protectedunderneath awareness.
Traditionally, emotions have been considered “messy,” and they are as-sumed to be more damaging than constructive for judgment. Yet researchhas proven that emotion is central to both good and bad decision making.In the previous chapter you saw that excellent intuitive decision making isoften based on gut “feel.” However, at moderate to high levels, emotionsoverwhelm intuition rather than support it. This chapter describes the spe-ciﬁc biases that arise from speciﬁc emotions.
Emotions can be short-term (lasting minutes to hours) or longer-term,such as moods (lasting hours to weeks). When emotions are chronic, theyare called attitudes, and when they represent permanent ways of dealingwith the world, they are personality traits.
The research literature has identiﬁed many ways in which emotionsalter the brain’s information processing and decision-making capacities.1Emotional decision makers often become attached to information that sup-ports their emotional state while ignoring contradictory evidence.2 Short-term emotions and moods (all called emotion henceforth) arouse an incli-nation to take action. If an action is not taken, then the emotion will linger.Subconscious emotions will bias judgment and decision making very sub-tly until they are appropriately discharged.3 (Jodie is an excellent exampleof the lingering and inadvertent expression of unprocessed emotions).
It’s human nature to react emotionally when events do (or do not) goone’s way. Furthermore, nothing has to happen for someone to experienceemotional reactions. The simple act of imagining possible outcomes, suchas great successes or terrible losses, stimulates emotion. Virtually everyinvestor has emotional reactions to market price action, especially whenstarting out. Most investors have felt nervousness during sideways mar-kets, elation during bull markets, and intense doubt and fear during sharpmarket downturns. Each emotion uniquely alters how investors think andwhat they subsequently do with their capital.
What are some of the speciﬁc pitfalls of emotional biases in decisionmaking? Table 6.1 summarizes the broad effects of emotion on processingand judgment.
chap06
JWPR011-Peterson (JWBK010-Peterson)
May 11, 2007
15:2
Char Count=
80
INSIDE THE INVESTOR’S BRAIN
TABLE 6.1 How Emotions Inﬂuence Decision Making
How Emotions InﬂuenceDecision Making4
Example
Current emotional state changes
processing style.
Underlying disposition or
personality biases perception.
Gut feelings—when one asks
himself, “How do I feel aboutit?”
Considering possible
consequences induces anemotional reaction.
How one expects to feel after he
or she receives a payoﬀ.
Happy people are more conﬁdent in theaccuracy of their decisions. Depressedinvestors are more detail oriented andindecisive.
Extraverted and optimistic individuals arepredisposed to seeing less risk thanneurotic (chronically anxious) people.Jack Welch decides “straight from the gut.”George Soros’s trades are inﬂuenced bysomatic sensations.
Worrying about the potential of a corporatebankruptcy ﬁling provokes avoidance.
Anticipating the joy of receiving a largeroyalty payment prompts anticipatorybuying.
How one expects to feel after he
Fearing the disappointment one will feel if
or she experiences a loss.
Emotions linger, aﬀectingjudgment, until they aredischarged (“workedthrough”).
Projection bias—people estimatethat they will feel the same inthe future as they feel today.
Motivated reasoning—peoplejustify their current beliefswith illogical arguments inorder to minimize negativeemotion.
an investment goes sour provokesdeeper, more detailed analysis.
Consider Jodie’s case. Her regret drove her
to avoid the stock market, cry whenwatching commercials about retirees,and eventual nightmares.
Not saving for retirement because “I’mﬁnancially comfortable now.” Fearfulinvestors think the stock market willalways be weak.
Pundits repeatedly advised investors to
“dollar-cost average” into Internet stocksas the NASDAQ fell during 2000–2001.
THE DIFFERENCE BETWEEN POSITIVEAND NEGATIVE FEELINGS
Positive emotions signal that life is going well, goals are being met, and re-sources are adequate. In these circumstances, people are ideally situatedto “broaden and build.5 ” Negative emotions, such as fear and sadness, are
chap06
JWPR011-Peterson (JWBK010-Peterson)
May 11, 2007
15:2
Char Count=
Money Emotions
81
characteristic of a self-protective stance in which the primary aim is toguard existing resources and avoid harm. Each stance, optimism and pes-simism, has characteristic effects on ﬁnancial judgment.
Positive emotions prepare the individual to seek out and undertakenew goals.6 Positive emotions, such as happiness, contentment, satisfac-tion, and joy, are characterized by conﬁdence, optimism, and self-efﬁcacy.Happy people interpret their own negative moods and damaging life eventswith more optimism and respond to them in more positive, afﬁrming waysthan more pessimistic people.7 There is a positive feedback effect of goodmood on well-being. Chronically positive people have better immunity andphysical health than others.
Researchers have found numerous effects of positive m