Emotions and Economics

In today’s post, I want to review the role of emotion in economic behaviour as emotions used to play an important part in Economics. Jeremy Bentham, for example, who is regarded as the founder of modern utilitarianism, gave emotions a prominent role in the decision process and viewed the concept of utility as the sum of emotions. Yet neoclassical economics abstracts utility from its psychological foundations (Loewenstein, 2000). Undergraduate students of Economics, in particular, familiarise with the representative economic agent as a rational and self-interested individual who deploys pure logic to maximise her utility. Insights from behavioural research rarely make it into an Introductory Microeconomics course. Yet more descriptive realism – particularly at undergraduate level – might help to arouse the students’ interest in the field.

Figure 1. Consequentialist model of decision-making (Source: Rick and Loewenstein, 2008, p.139)

So, let’s start with the neoclassical view on emotions in economic behaviour. Standard economic models are consequentialist in nature (figure 1), meaning that choice is modelled as a cognitive process of utility maximisation. This does not rule out the influence of emotions in the decision process as consequentialist models can account for expected emotions, i.e. emotions which the decision-maker anticipates to experience because of her decision. Emotions experienced at the point of decision-making, however, are difficult to capture in these models as the decision-process itself is some form of expectation-based calculus.


When Scope

Expected emotions

After making the decision

Related to the decision

Integral emotions

At the point of decision-making

Related to the decision

Incidental emotions At the point of decision-making

Unrelated to the decision

Table 1 The different types of emotions in decision-making

In contrast, behavioural research has identified two types of immediate emotions which are important for understanding an individual’s choice but which are typically neglected in the neoclassical view (see table above). First, there are integral emotions. They are related to the decision at hand and arise from thinking about the decision’s consequences. As shown in figure 1, consequentialist models can, in fact, be extended to incorporate this type of emotions as there is a causal link between the decision and this type of immediate emotions. Second, there are incidental emotions which are also experienced at the point of decision-making but which are unrelated to the decision, arising from situational influences and visceral factors (Rick and Loewenstein, 2008). Yet because incidental emotions are irrelevant to the decision, they are difficult to capture in the consequentialist perspective. What is more, economists tend to refrain from incorporating visceral factors in their analyses as (1) “visceral factors often drive people to behave in ways that they view as contrary to their own self-interest” and as (2) “people tend to underestimate the impact of visceral factors on their own current and future behaviour” because these complications run counter to the view that decision-making is a cognitive process (Loewenstein, 2000, p.428). Fortunately, with the rise of behavioural economics, integral and incidental emotions re-enter economic analyses. Starting with counterfactual emotions such as regret, more realistic models of behaviour emerge which re-connect emotions and utility. In the last few years, in particular, one can see a rethinking in economic modeling, for example, with the risk-as-feelings hypothesis by Loewenstein, Weber, Hsee and Welch (2001).

In sum, expected, integral and incidental emotions play an important role in economic behaviour and with a shift towards more psychologically realistic assumptions, they re-enter economic models.

Many thanks for reading; I hope you enjoyed today’s topic!



Loewenstein, G.F. (2000). Emotions in Economic Theory and Economic Behaviour. Preferences, Behaviour, and Welfare, 90(2), pp. 426-432.

Loewenstein, G.F., Weber, E.U., Hsee, C.K. and Welch, N. (2001). Risk as Feelings. Psychological Bulletin, 127(2), pp. 267-286.

Rick, S., and Loewenstein, G.F. (2008). The Role of Emotion in Economic Behavior. In: M. Lewis, J.M. Haviland-Jones, L.F. Barrett (Eds.). Handbook of Emotions (3rd ed.). New York: Guilford Press.


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