Think Emotion-Driven Decisions Are Bad? Behavioral Economists Disagree. When it comes to strategy, "emotion" is a dirty word. But experts say the data shows you should embrace your feelings when making tough calls.

You rarely hear the words "emotion" and "strategy" in the same breath.

There's a reason for that: Emotions, especially in popular culture, are believed to be messy and subjective. Strategic planning, on the other hand, is driven by cold logic. It's why we have data and objective analysis, right? It's why strategy consulting has become a multibillion-dollar market, run by disassociated wonks trained in clinical processes.

However, this is a simplistic and naïve way of thinking. Breakthrough research from neuroscientist Lisa Feldman Barrett, a distinguished professor of psychology at Northeastern University, has shown that emotions are essentially forecasts that your brain produces as "shortcuts" based on your past experiences. That includes those in business. According to Barrett, emotions are one of the brain's ways of making sense of a world that would otherwise overwhelm it. By creating these shortcuts, we don't have to process information as if it's new every time — which means we save on reaction time and increase our ability to survive.

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So what does this have to do with business strategy? Well, strategy formulation — just like emotion — is also based on a set of forecasts. You are doing what you believe to be best for your company, based on whatever you've experienced before. This means that whenever you embark on a strategy development process, you are in effect embarking on an emotional journey as much as an intellectual one.

Here is an example: According to McKinsey & Company research results published in 2018, the boldest strategy typically produces the highest rates of success. And what counts as boldest? Take your pick: It could mean entering a new market, driving a major turnaround, or changing a long-running business model. But this requires a very human touch; boldness is a state of mind as much as it is a business strategy. If you are consumed by fear while making your decision, you're more likely to choose the safe strategy over the bold one — and miss out on all the rewards of thinking big. Of course, blind boldness is not good either. Overconfidence can produce disastrous results, because it could lead you to choose an impossible-to-execute project, overlook the need for incremental change, or shift to a business model that is unproven for a company of your size.

So what does one do in the face of these conflicting priorities and emotional states that come with strategic decision-making?

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First, let's acknowledge that emotions do play a role in how we build strategy. It's simply impossible for them not to. And this is an opportunity. Here are three ways to wisely engage with your emotions to make smart, strategic decisions.

1. Test your intuition regularly.

Now that we've established how emotions play a central role in strategy, it's important for you to know when those emotions are leading you astray. When, for example, are you misfiring or being biased because of your emotions?

Unfortunately, we can't A/B test our way through this question. It's unwise to test multiple strategies all at the same time — that would be confusing for everyone. But there is an easier way, as shared by Duke University behavioral economist Dan Ariely: He suggests that leaders conduct regular, small tests on their own intuition.

How? Start small. Every day, you'll make decisions that could grow or improve your enterprise. Some of those decisions will feel intuitive; others will feel scarier. There is always going to be a subset where your intuition says no but market insight and data say yes. In those cases, use low-cost pilot programs to test if your intuition was correct (or not) — and then learn from the results.

A word of caution: Many leaders commission pilot studies that are meant to fail — either through design or subliminal bias — as a means of confirming their own beliefs. That's why you should separate yourself from these tests wherever possible. Let your team run them, and don't hold it against them if they fail. Over time, this process will align your intuition with winning strategies.

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2. Match the pace.

In 1997, Jeff Bezos wrote a shareholder letter with a great bit of wisdom. He described two different kinds of decisions, which he called reversible and irreversible. Reversible decisions can be made rapidly; a poor choice can be fixed with a low-cost U-turn. Irreversible decisions must be made with more care, because they're either too expensive to undo or generally considered too big to fail.

For leaders, this isn't an invitation to take reversible decisions lightly. Nobody should just fire emotionally from the hip. However, it is worth thinking about the range of emotions that drive these two types of decisions — and the different pacing and time that should be invested in analyzing how you "feel" about each. For big, irreversible decisions, it is equally important that your management team also processes and shares their feelings about them as data points to consider.

3. Define emotions more granularly.

We tend to talk about emotions in big, generic ways — angry, sad, nervous, happy. These words can mean different things and can be experienced differently depending on our social settings and upbringings. The human emotional map, however, is far more varied. If leaders are going to engage with their emotions, they should have a more granular understanding of how they feel and what drives those feelings. Then they can actively train their minds to demarcate between these different states of happiness, down to perhaps even a KPI level.

Let's say you launched a product. That probably makes you happy. But how happy? And what exactly about it drove that happiness? Was it really happiness or was it just the satisfaction of responding to a competitor? These may sound like abstract questions, but they have real value — because they help us break down our emotive signals into more useful guides that we can then use later to steer strategy formulation. Without going into that level of emotional specificity and insight, bold new business ideas might appear to be too small or uninspiring for you to take on, and you may end up less alert to the results of your decisions.

As you see, there's a big difference between engaging with emotions and being driven by them. Strategy must be rational and logical. But it is also very human.

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