Thinking, feeling and deciding: the influence of emotions on the decision making and performance of traders

Abstract

We report on a qualitative investigation of the influence of emotions on the decision making of traders in four City of London investment banks, a setting where work has been predominantly theorized as dominated by rational analysis. We conclude that emotions and their regulation play a central role in traders' decision making. We find differences between high and low performing traders in how they engage with their intuitions, and that different strategies for emotion regulation have material consequences for trader behavior and performance. Traders deploying antecedent-focused emotional regulation strategies achieve a performance advantage over those employing primarily response-focused strategies. We argue that, in particular, response-focused approaches incur a performance penalty, in part because of the reduced opportunity to combine analysis with the use of affective cues in making intuitive judgments. We discuss the implications for our understanding of emotion and decision making, and for traders' practice