Home > Heuristics

Affect Heuristic

Abstract: "This chapter introduces a theoretical framework that describes the importance of affect in guiding judgments and decisions. As used here, affect means the specific quality of “goodness” or “badness” (1) experienced as a feeling state (with or without consciousness) and (2) demarcating a positive or negative quality of a stimulus. Affective responses occur rapidly and automatically – note how quickly you sense the feelings associated with the stimulus words treasure or hate. We argue that reliance on such feelings can be characterized as the affect heuristic. In this chapter, we trace the development of the affect heuristic across a variety of research paths followed by ourselves and many others. We also discuss some of the important practical implications resulting from ways that this heuristic impacts our daily lives."
Conclusion: "We hope that this rather selective and idiosyncratic tour through a mélange of experiments and conjectures has conveyed the sense of excitement we feel toward the affect heuristic. This heuristic appears at once both wonderrous and frightening: wonderous in its speed, and subtlety, and sophistication, and its ability to “lubricate reason”; frightening in its dependency upon context and experience, allowing us to be led astray or manipulated – inadvertently or intentionally – silently and invisibly. [...]"
Slovic, et al. (2002)

"The discovery that the weather in New York City has a long history of significant correlation with major stock indexes supports the view that investor psychology influences asset prices."
Saunders (1993)

"Psychological evidence and casual intuition predict that sunny weather is associated with upbeat mood. This paper examines the relation between morning sunshine at a country’s leading stock exchange and market index stock returns that day at 26 stock exchanges internationally from 1982-97. Sunshine is strongly significantly correlated with daily stock returns. After controlling for sunshine, rain and snow are unrelated to returns. There were positive net-of-transaction costs profits to be made from substantial use of weather-based strategies, but the magnitude of the gains was fairly modest. These findings are diffcult to reconcile with fully rational price-setting."
Hirshleifer and Shumway (2001)

"Kida, Smith, & Maletta (1998) asked experienced business executives to evaluate ten firms (in two sets of five) with regard to their attractiveness as potential stock investments. Each firm was described by 10 numerical accounting measures, such as return on assets, market share, etc. One firm, B, clearly dominated the other four firms in its set, presumable creating strong positive affect. One hour later, the executives were given the second set of five firms to study, no one of which stood out. After another hour, the executives were asked to choose one firm from the combined set of ten, without having the data in front of them. Firm B was selected by 82% of the executives even though it was only third best in the combined set. This suggests that the positive affective memory trace for Firm B carried more weight than the memories of the numerical data.
A very different effect of time horizon has been observed in studies asking investors to estimate the future performance of their stock portfolios over varying time periods. During the exceptional bull market of 1998, U.S. investors were extremely optimistic regarding the coming 12-month period, expecting an annual return of about 14% (Dreman, Johnson, MacGregor, & Slovic, 2001). When asked to forecast their average annual return over the next 10 years, the estimates were even more optimistic, averaging 17.4%. Asking for forecasts adjusted for inflation did not diminish this discrepancy. Numerous other surveys conducted prior to September 11, 2001 show the same antiregressive tendency for already extreme short-term forecasts to become even more extreme for the long term.
The representativeness heuristic, whereby forecasts are made to be similar to or representative of recent data (Kahneman & Tversky, 1972), may explain why 10-year forecasts did not regress to the long-term base rate of 10%-11% for U.S. stocks. However, it cannot explain why the 10-year forecasts actually exceeded the extremely favorable one-year returns that were projected.
Dreman et al. (2001) suggest that this great optimism towards long-term returns might be explained by the affect heuristic coupled with a concept that Trope has called "temporal construal" (Trope & Liberman, 2000, 2001). When a person forecasts rate of return on investments, the time frame is likely to determine the representational imagery associated with that investment. According to Trope and colleagues, the greater the temporal distance, the more likely events are to be represented in terms of a few abstract or general features that convey the perceived essence of the event under consideration. Events nearer in time are likely to be represented in terms of more concrete and specific details. Trope and Lieberman (2001) offer a visual analogy: "From a distant perspective we see the forest, but from a proximal perspective, we see trees." (p. 23).
In the case of investments, the optimism underlying the near-term (one-year) forecasts in 1998 may have been tempered by awareness of some of the specific uncertainties and problems for that period. The Russian default and the enormous indebtedness of Long Term Capital, which together threatened a financial debacle, presented a real threat of a worldwide financial crisis. In addition, many conservative investors believed that the Internet tech bubble might soon burst.
The imagery associated with the 10-year forecasts is unlikely to be burdened by these specific "local" details. Instead, global phenomena such as "baby boomers investing heavily for retirement," or general feelings of optimism are likely to dominate the affect pool that is salient for the long-term projections. To the extent that these general representations are positive (obviously they do not have to be), they will produce more favorable forecasts than those made for the near term. In their studies of temporal construal, Trope and colleagues have produced considerable experimental evidence documenting the differential nature of short-term and long-term representations."
Slovic (2002)

"The market is more likely to go up on sunny than on cloudy days, and this relationship is reliable when nonweather variables are controlled for."
"...investors are more optimistic about their likely returns on sunny than on gloomy days."
Schwarz, Feelings as Information: Moods Influence Judgments and Processing Strategies, Ch 29

"As used here, affect means the specific quality of "goodness" or "badness" (1) experienced as a feeling state (with or without consciousness) and (2) demarcating a positive or negative quality of a stimulus."
Slovic et al., The Affect Heuristic, Chapter 23, page 397

Articles via Google Scholar


Articles published since

2000| 2001| 2002| 2003| 2004| 2005| 2006| 2007| 2008| 2009| 2010| 2011| 2012


  1. SLOVIC, P., et al., 2002. The affect heuristic. Heuristics and biases: The psychology of intuitive judgment. [Cited by 125]
  2. FINUCANE, M.L., et al., 2000. The affect heuristic in judgments of risks and benefits. Journal of Behavioral Decision Making. [Cited by 109]
  3. SLOVIC, P., et al., 2002. Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics.. Journal of Socio-Economics. [Cited by 15]
  4. BODENHAUSEN, G.V., 1993. Emotions, arousal, and stereotypic judgments: A heuristic model of affect and stereotyping. Affect, cognition, and stereotyping: Interactive processes …. [Cited by 46]
  5. SLOVIC, P., et al., 2004. Risk as Analysis and Risk as Feelings: Some Thoughts about Affect, Reason, Risk, and Rationality. Risk Analysis. [Cited by 30]
  6. FORGAS, J.P., 1995. Mood and judgment: The affect infusion model (AIM). Psychological Bulletin. [Cited by 229]
  7. FINUCANE, M.L., et al., 2000. The affect heuristic in judgements of risk and benefit. Journal of Behavioural Decision Making. [Cited by 2]
  8. SLOVIC, P., 2001. Rational Actors or Rational Fools: Implications of the Affect Heuristic for Behavioral Economics ( …. [Cited by 1]