Hermalin, B., &Isen, A. (2000). The effect of affect on economic and strategic decision making. CLEO Research Paper No. C01-5.

The standard economic model of decision making assumes a decision maker makes her choices to maximize her utility or happiness. Her current emotional state is not explicitly considered. Yet there is a large psychological literature that shows that current emotional state, in particular positive affect, has a significant effect on decision making. This paper offers a way to incorporate this insight from psychology into economic modeling. Moreover, this paper shows that this simple insight can parsimoniously explain a wide variety of behaviors.

 

 

Hermalin, B., &Isen, A. (2000). The effect of affect on economic and strategic decision making. CLEO Research Paper No. C01-5.

http://dx.doi.org/10.2139/ssrn.200295