Crowding Out? The Joint Impact of Emotions on the Categorization Process

Abstract

Emotions drive managers’ cognition—namely, their perception, interpretation, and memory—thus influencing their behaviors. The association between emotions and cognition takes multiple forms. First, both negative and positive emotions contribute to perception and learning about situations, thus making these two types of emotions functionally complementary to each other. Second, emotional experiences enhance episodic memories, allowing emotions to continuously affect cognitive functions by recalling previously stored information. Finally, managers’ experiences of emotional shifts strengthen their ability to help firms implement appropriate strategic changes via categorization processes, allowing firms to maintain superior performance in the long term. Hence, our argument in this paper is that managers’ emotions may affect their cognitive process of categorization. More specifically, we believe that the combination of managers’ positive and negative emotions as well as their emotional shifts facilitate developing comprehensive analyses of the competitive environment, thus allowing managers to create categories of firms that effectively represent the changing environment they are confronting. These categories enable firms to perceive the necessity of strategic changes and the appropriate approaches to enacting such changes, thus helping firms adapt to environments and maintain superior performance in the long term. To explore these relationships, we leveraged a computer simulation to identify the causal effects of managers’ emotions on their categorization activities. Simulation results imply that emotional experiences improve the categorization process by providing more reliable information foundations and enabling logical analyses. Such findings also bear managerial implications regarding how managers’ emotions should be adjusted to improve managerial cognitive processes.