Abstract

This chapter delves into the intricate relationship between emotions and economic decision-making, challenging the traditional rational agent model prevalent in mainstream economics. Drawing from psychology, neuroscience, and behavioral economics, we explore how emotions influence decisions under risk and uncertainty, intertemporal choices, and social decisions. It argues that emotions, far from being peripheral, are central to the decision-making process. The chapter also discusses the evolutionary origins of emotions, highlighting their adaptive functions in small hunter-gatherer societies characterized by social interdependence and environmental uncertainty. It also highlights the potential of emotional intelligence and strategies such as distancing to temper negative emotional sway, enabling unbiased appraisals of situations. Emotions provide important information for making complex decisions, and one important component of emotional intelligence lies in understanding and harnessing the power of emotions to make more informed and optimal choices in economic settings. The chapter serves as a review for anyone interested in the intersection of emotions and economics, offering both theoretical insights and practical strategies for improving decision-making.

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