The Affect Heuristic

As noted, decision-makers utilize heuristics under conditions of uncertainty. The affect heuristic, the reliance on feelings in making a decision, plays a major role in behavioral theories (Finucane et al., 2000; Slovic et al., 2002; Slovic et al., 2007). The affect heuristic is the positive or negative feeling associated with judging the risks or benefits of something. Typically it refers to the quality of the evaluation. As considered in the context of this research, does experience have an impact on decision-making by private equity decision-makers as they review

investments? This heuristic is connected to the action-oriented biases as discussed by Lovallo and Sibony (2010) because it causes individuals to take action without thoroughly thinking through the consequences of the act.

In an article published in 1980, R. B. Zajonc challenged the prevailing view that affect was post cognitive. In fact, he found that affect and cognition are under the control of separate and partially independent systems and that they influence each other in a variety of ways

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(Zajonc, 1980). He set out a number of considerations: (1) affective reactions are primary; (2) affect is basic; (3) affective reactions are inescapable; (4) affective judgments tend to be irrevocable; (5) affective reactions are difficult to verbalize; (6) affective reactions need not depend on cognition; and (7) affective reactions may become separated from content. In summary ‘affective responses are effortless, inescapable, irrevocable, holistic, more difficult to verbalize, yet easy to communicate and to understand (p.169). Zajonc later defended his view of affective primacy and independence (Zajonc, 1984).

The interaction of emotion and cognition continues to be the subject of academic research. For example, Peters et al. (2004) defined affect as “good or bad feelings toward an external stimulus” (p. 1350). In the context of stigma reactions to radiation sources the authors developed a model of stigma susceptibility in which affective reactions and cognitive worldviews activate predispositions to appraise and experience events in systematic ways that result in the generation of negative emotions, risk perceptions and stigma responses. Individuals can differ in the strength of their affective reactions which in turn suggests an important role for individual differences in risk perception.

The definition of affect has been narrowed to “the specific quality of “goodness” or “badness” (i) experienced as a feeling state (with or without consciousness) and (ii) demarcating a positive or negative quality of a stimulus” (Slovic et al., 2007). Affective responses occur rapidly and automatically. Studies indicate that people seem prone to use an ‘affect heuristic’ which improves judgmental efficiency in assessing risks and benefits (Finucane et al., 2000). They found that risk and benefit are linked to perception and consequently to people’s

Evidence indicates that affect mediates, at least in part, the relationship between an individual’s cognitive evaluation of risk and his behavioral response to it. This is relevant to the PEG decision-maker as the inherent risks of assessing a potential investment are considered. When there is a divergence between the cognitive and the emotional reaction, the emotional reaction often drives behavior. Risk can be viewed in three different ways: (1) risk as feelings; (2) risk as analysis; and (3) risk as politics (Slovic et al., 2004). Reliance on feelings is the affect heuristic. While analysis is important in certain decision-making, individuals rely on affect and emotion as a more efficient way to make decisions in circumstances of complexity or uncertainty. They consult the ‘affect pool’ (all the positive and negative markers associated with the images in their minds) in the process of making decisions (Slovic et al., 2005).

Slovic et al. (2002) introduced a theoretical framework that outlined the importance of affect in judgments and decisions. They described two types of thinking. The experiential mode is intuitive, automatic and is based on images to which positive and negative affective feelings have been attached. The other type of thinking is analytic, deliberative and reason based. The ‘affect heuristic’ occurs when people use their affective feelings when making decisions. A later study (Slovic et al., 2007) continued to develop this theoretical framework. After a review of the development of the academic research regarding the affect heuristic, the authors went on to discuss some of the practical implications as it affects daily life. This heuristic works well when experience enables a person to anticipate how much they will like or dislike the consequences of a decision. It does not work well when the consequences are much different than anticipated.

The dual-process theory of thinking, experiential and analytic, continues to be researched (see Slovic & Peters, 2006). In 2006 the Journal of Risk Research published several articles on the issue of affect and risk perception. In his editorial, Sjoberg distinguished between the

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concept of the severity of consequences and emotion (Sjoberg, 2006). He argued that the belief of affect playing an important part in risk perception was due to an incorrect usage of the word emotion. When affect is used to denote emotion it is of only minor importance in risk

perception.

In his commentary, Wardman answered Sjoberg by saying that the latter’s concerns were overstated and restated the view “that cognition and emotion operate as two distinct modes of reasoning to help guide risk judgements and decisions, and that not only does cognition influence emotion, but emotion in return may also influence cognition” (Wardman, 2006, p. 111). The author goes on to consider the overall affective evaluation of a stimulus. Research is interested in “the way in which risk responses can occur rapidly and automatically as a heuristic, the extent to which a person expends the mental capacity and energy evaluating a stimulus is a facet of whether experiential affect is the overriding mechanism for judging risk” (p.112).

Affect also helps decision-makers attach meaning to information, which in turn, influences their ability to use it during judgment. Wilson & Arvai, (2006) found that affective responses to a stimulus may overwhelm analytic computations that are necessary during

decision-making. The need to combine affective and analytic evaluations of risk information is necessary to ensure efficient and sound responses to risk (Finucane & Holup, 2006). This ‘risk- as-value’ model implies that differences in perceived risk may arise from an analytical review of a risk, an affective evaluation of the risk, or a combination of the two. The valuation of risk information is necessary to achieve the desirable outcome.