(Formerly published April 4, 2024 to LinkedIn.)

Removing personal emotions from the decision-making process is a good business strategy but yet…

Good results rarely, if ever, come from business decisions made with emotions in the lead. I am hard-pressed to think of even one example. However, I can think of multiple examples in which emotions ruled the day and, when the dust settled, clean-up was an unenviable task. In 2022, Oxford Risk behavioral finance experts found that “over 73% of wealth managers believe emotional decision-making costs investors investment returns,” while “nearly two-thirds (63%) believe emotional decision-making costs the average investor over 100 basis points of investible wealth each year” and “15% believe the cost is over 200 basis points.” Let that sink in for a bit.

It doesn’t matter if the decision to be made implicates only you, as a business professional, or a much larger group. It does not matter if you are the solo decision-maker or if you are part of a buying group. It’s always a good idea to separate as much emotion as you can from the situation in front of you. It lets you get your hands around the facts in as an objective manner as possible.

It’s not as easy as it sounds. I know. I’ve been there many times. We’re all there, a lot. It’s when we’re conscious of the impact emotions can have on us as we weigh risks, alternatives, opportunities, crises, and new ventures, that we position ourselves to actively work to separate fact from feelings. Feelings have their place, but they should not lead business decisions; it’s not a good business strategy.

Business decisions and financial decisions go hand-in-hand. Nobel Memorial Prize in Economic Sciences winner and psychologist Daniel Kahneman had a lot to say about financial decision making. He and his colleague Amos Tversky, PhD, conceptualized “behavioral finance,” which suggests that most people are not rational wealth maximizers, not even when the stakes are high individually or for a business. Instead, they are highly influenced by “emotional biases…the result of reasoning influenced by feelings.” I’ve seen this in action many times, and I actively question it when I can because I want to help people make sound financial decisions. In my past lectures, I spent countless hours pondering the age of question of “why do we do what we do when what we do is contrary to our well being”. I would love to see a response to this question.

Our financial decision-making habits form at a very young age and it’s the rare person who grows up consciously separating feelings from financial decision making. They don’t know how, but they should. The first distinction we can make is simple: separate wants from needs. In fact, make wants-versus-needs-thinking a habit. It’s easy to stop and ask, “is this what my company wants or needs? Is this what I want or need”? If it’s a want, the next question is “why,” with a close second, “what are short- and long-term implications to my fiscal solvency”? If it’s a need, ask the same questions. If you find yourself chafing at the idea of separating needs from wants, in any context, my guess is that you need practice but you are not alone. We all need practice.

Another technique is to do your best to recognize your feelings and the biases that go with them, harness them the best that you can from the facts of the business decision-making situation, and proceed to weigh the options in front of you. The idea of “bracketing” comes to mind here. I am not a phenomenologist by any means, but I have a colleague who has mentioned “bracketing” to me several times over the years. It’s useful; it makes a lot of sense. An idea belonging to phenomenologist Edmund Husserl, bracketing involves actively suspending judgement before proceeding to engage in an experience, in our case business decision making. In other words, it “means looking at a situation and refraining from judgement and bias opinions to wholly understand an experience.” When one imagines the idea of [bracketing and setting aside] emotions, it’s not difficult to “see” yourself engaging the process. It’s a technique that I employ often.

Finally, multi-attribute decision making can help with all of it. Even if you are not a lists person, you can choose to be one, especially when faced with business decisions. Weighted lists invite even more rational thinking; they’re excellent investments. Carefully researching and recording the multitude of attributes influencing a business decision yet to be made, then weighting each one according to a system of influence or importance, commands systematic effort. It’s possible when we’ve already done our best to remove [to bracket] our feelings and biases from the situation.

The extent to which we can keep personal emotions from leading our business decisions corresponds to the degree with which we make decisions that we (or someone else) don’t later regret. The decision-making process may take a little more reasoned effort, along with a bit more of our time, but it’s a good business strategy.

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The views expressed in this article are those of the author.