If I could make a list of all the things I wish someone had told me when I was 20 years old and venturing out into the world, the number one thing on that list would be the following sentence: We all make decisions with our emotions.

It’s always our emotions.

In the book “Descartes Error”, Antonio Damassio describes a man with a rare mental condition: he did not experience emotion. At all. Nothing. This man drove to a doctor’s appointment in an ice storm, and he was puzzled that so many people had skidded off the road. He was confused as to why people hit the brakes when they drove over an ice patch, since everyone knows you should accelerate through those patches. Then you won’t skid off the road.

This man with no emotions didn’t feel fear. So as a result, when he hit an ice patch, he just did the purely rational, Spock-like thing: he accelerated. This sounds like it might be an advantage, no? After all, it’s easy to imagine how life might be less difficult if we didn’t have to deal with fear.

Dr Spock Live Long and Prosper 1.jpg
At first, it might seem like not having emotions would be an advantage…

When the meeting was over, the doctor asked him if he wanted to meet next Tuesday or next Thursday. He went back and forth between Tuesday and Thursday for half an hour, listing all the pros and cons of each day. (There was no reason to choose one day over the other.) He couldn’t decide. Finally, the doctor said, “We’ll meet on Tuesday.” The man said, “OK”, jotted the appointment down in his notebook, got up and left.

We’ve done studies on people with a similar condition, and they can’t decide between a blue pen and a black pen if asked to do a survey. They will literally spend hours debating all the pros and cons.

You know how when you get really, really angry, the world narrows? Your vision literally gets smaller? That’s how emotions always work. They block out information so that we can make decisions. (And they are also, in some ways, the energy for making and carrying out those decisions.) And this blocking out of information is necessary when we are forced to constantly make decisions that don’t matter.

Emotions give you focus
Emotions help you focus, for better and for worse.

Emotions are even more valuable when we’re forced to make decisions where it is impossible to know what the right choice is, but we need to stick to the choice we made. I mean, really, does anyone in college actually have enough valid information to decide on what major to choose? Just think about this. But you have to choose something or you won’t graduate. And you have to be able to stick with some decision, eventually.

On a societal level, emotionally charged decision making also provides a method for everyone to act together. It’s not important which side of the street we, as a society, choose to drive on. It makes no difference at all if we choose to drive on the right hand side, as in America, or the left hand side, as in Great Britain. But it’s crucial that we all drive on the same side. Imagine a tribe ten thousand years ago. It might not be possible to determine whether it’s best to move or stay from the current stomping grounds, but everyone will be better off if everyone makes the same decision.

Remember when your parents asked, “If so-and-so jumped off a cliff, would you do it too?” OK, ten thousand years ago, if you saw your friends jumping off a cliff, you had better jump too. Because whatever is chasing them is a hell of a lot scarier than that cliff.

So it’s easy to see what benefits we’ve had in the past, and to some extent still have, because of emotional decision making. The problem is that in the modern world of finance, brilliant marketing and slick sales-people, our emotions can easily lead us astray.

In essence, the problem with our emotional decision-making in a complex society is that our emotions will often try to simplify things and make connections that are not there. If you ask people whether or not they are better than average drivers, the majority of people will say they are. Researchers used to think this was over-confidence, but now there may be a better theory. If you ask people whether or not they are better than average at initiating conversations with strangers at parties, the overwhelming majority of people will say they are worse than average.

It’s not over-confidence. The brain is just answering a simpler question. How could my brain determine how good an “average” driver is? The question is too complex, so my brain just answers a different question. Basically, “do I tend to get where I’m going without getting in an accident?” Yes. OK, there’s the answer. And my brain does the same thing when evaluating conversations with strangers at parties. It simply asks whether I enjoy initiating those conversations. Nope. OK, there’s the answer.

Pug and Baby Goat
When you want to say hello but don’t know how…

And we do this with really important financial questions. “Should I pay off student loans or invest?” Well, that question is too complex, so people just answer a simpler question. Maybe they answer, “Do I hate debt?” (And there’s the emotion.) “Is it worth it to spend money on this new car or should I save it?” Too complex. “Do I want the car?” Much simpler, and all about desire.

When I ask a group of people what they need help with, the first answer is always some version of, “How do I take control of my finances?” The phrasing might be, “How do I manage money?” It might even be, “How do I stop spending money on stupid stuff?” How to stop spending on stupid. That was originally going to be the title of this website, actually–StopSpendingonStupid, dot com. (Feel free to use that for your own website, if you’d like.)

So the issue here is: If we already know the spending is stupid, then we know we aren’t making good decisions over time. But in the moment, our brain reverts back to simple decision-making. That means that we have to devise methods to make the right decisions simple. We have to make the right decisions habitual.

Exercise extra fries
We have to make good decisions habitual. Otherwise, our emotions from the past take over.

And depending on where you are in life, this next statement might seem like a surprise, or it might be completely obvious. It’s nearly always the case in personal finance that behavior and habits are the real issues. This is true even in investing. Everyone understands to buy low (or at least lower) and sell higher. And believe it or not, there are strategies available to almost anyone to achieve that goal. But the wealthiest, most successful investors sometimes have an incredibly difficult time, behaviorally, following those strategies. Their emotions get in the way.

So what this all means is that if we want to make better financial decisions, we need to examine and find some way to improve our emotional make-up. And yikes, that emotional make-up can be complicated.

Our own pasts can lead us astray. Recent research shows that we can still be making decisions based on emotional reactions that happened months, years or even decades ago. If you got rejected by someone really attractive a decade ago, that might still be influencing your willingness to ask people on dates now. If you didn’t get love from your parents when you were a child, that might still be influencing how you deal with your spouse today.

Here’s another example of how our emotions connect things that shouldn’t be connected. We get a big emotional thrill from positive surprises. So when we are a kid and someone surprises us with a new toy, we get that thrill. But then we may think that it’s the toy that caused the thrill, and not the surprise. Later on, we’re still buying toys trying to get that thrill, but the thrill is gone, because we are not surprising ourselves.

What’s even stranger is that, partly because of empathy, we can be making decisions based on emotions that other people experienced, especially our parents or early childhood friends. So if your parents were always stressed out about money, you may still be making decisions based on the stress that you experienced second-hand, and you may not even know where your emotional reactions are really coming from.

And I would argue that many of our outdated emotional responses are from further back than our childhoods, are older than our parents, and are really better suited to a human world that has not existed for centuries.

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