Rational, analytical thinking is often seen as the gold standard when it comes to decision-making. Yet according to Professor Baba Shiv, cool, level-headed intellect isn’t the only game in town. “Is a good decision based on reason?” he asks. “Or is it based on emotion?”
Shiv is the Sanwa Bank, Limited, Professor of Marketing at Stanford Graduate School of Business. Throughout his career, he’s researched how brain structures related to emotion and motivation affect the choices we make. In exploring the complex neurology that leads people to choose one course of action over another, he has uncovered insights that challenge our prevailing ideas about reason and rationality. In this episode of If/Then: Business, Leadership, Society, Shiv explores how we can use our emotions and instincts to make meaningful decisions instead of relying on our rational brains alone.
Is Rational Always Right?
Post-Enlightenment Western thought is infused with the assumption that rationality is at the core of properly functioning individuals and, by extension, properly functioning societies. “We have this embedded in our minds from childhood,” Shiv says. “If you’re making consequential decisions, be as rational as possible.” It’s an idea that Shiv traces from Aristotle to Descartes to the present, but one that “forgets that we have evolved with emotion. If emotion were irrelevant, we would have evolved very differently.”
According to Shiv, the rational brain is only responsible for about 5 to 10% of our decision-making. “Emotions… have a profound influence on our decisions and we aren’t aware of it,” he says.
Shiv demonstrated this in a study involving wine drinkers and the neural processes used to distinguish different vintages. Subjects were told that they would be trying five different cabernet sauvignons, each identified by price. In fact, only three wines were used — two were poured twice, and each was marked with a fake price ranging from $5 to $90. As the participants tasted each wine, Shiv monitored their brain activity.
“What intrigued me was that people swore that the more expensive the wine is, the better it tastes,” Shiv says. “And the question I had was: Is this just a figment of our imagination? Or is the brain extracting more pleasure when the wine is more expensive?” That is exactly what his results found: “The area of the brain that codes for pleasure shows greater activation when the brain thinks it is tasting a higher-priced wine than when it’s tasting a lower-priced wine, even though subjects tasted the same wine.”
Making the Decision Right
In addition to helping us make decisions, emotions play a critical role in helping us commit to the choices that we make. To move forward with a decision, we need what Shiv calls “decision confidence,” the conviction that our choice is the correct one.
“If you emerge from the decision with doubts, you’re more likely to give up too early and not persist in the course of action that you adopted,” he says. “You need to emerge from the decision feeling absolutely confident. It’s not making the ‘right decision’ but making the decision right.”
Much of society, especially business, places a premium on rational thinking, but Shiv encourages us to embrace our instincts and intuitions. As this episode of If/Then explores, if we want to make better decisions, then we need to think more like an artist.
If/Then is a podcast from Stanford Graduate School of Business that examines research findings that can help us navigate the complex issues we face in business, leadership, and society. Each episode features an interview with a Stanford GSB faculty member.
Full Transcript
Note: Transcripts are generated by machine and lightly edited by humans. They may contain errors.
Kevin Cool: If we want to make better decisions, then we need to think more like an artist.
Yunfei Ren: I don’t think we should look at artists as a different species. We all have a bit of the artist genes in ourselves.
Kevin Cool: Yunfei Ren is a visual artist from Wuhan, China. He’s speaking at the launch of a photo series at a theater space in San Francisco. Yunfei has exhibited at museums like the de Young and Cantor Arts Center at Stanford, but he only recently started calling himself an artist.
Yunfei Ren: I started thinking of myself as an artist since the pandemic, actually. That was a major change. I had a whole corporate career for about 10 years in marketing. And when I turned 30, I decided to give photography a shot.
Kevin Cool: He quit his job and started pursuing an MFA. But the biggest change was in his outlook.
Yunfei Ren: When you’re an artist, you start to ask yourself from within what are the questions I want to answer, what are the things that I want to respond to, and then you create artwork for them. And it’s an attitude shift; it’s a mindset shift.
Kevin Cool: He often thinks analytically, weighing the pros and cons before he makes a decision, but he says he has been trying to approach his personal life more like he approaches his art.
Yunfei Ren: Becoming an artist has been quite freeing for me. I’ve learned to just trust my instinct more and be okay with however it turns out.
Kevin Cool: And he doesn’t think this perspective is just for people pursuing a life like his. Anyone can do it, even if they’re not making art.
Yunfei Ren: I think ultimately thinking like an artist is really thinking like people, like human beings, to trust your own instincts and start from the heart: what do you like, what do you believe in. And the data and external materials can help, but it’s a balance between the two, I think.
Kevin Cool: We rely on analytical thinking and data for so much of our life, but what would happen if we approached the world the way an artist does? Could we use our emotions, our instincts, to make meaningful decisions instead of relying on our rational brains alone?
This is If/Then, a podcast from Stanford Graduate School of Business, where we examine research findings that could help us navigate the complex issues facing us in business, leadership, and society. I’m Kevin Cool, Senior Editor at the GSB. Today we speak with Baba Shiv, the Sanwa Bank, Limited, Professor of Marketing. According to Baba, if we want to make better decisions, then we need to think more like an artist.
So, let’s start with a fact that I think drives much of your research. The rational part of the brain accounts for about 5 to 10 percent of the decisions we make.
Baba Shiv: That’s right.
Kevin Cool: In what ways then do emotions drive our decision making?
Baba Shiv: Profound influence on our decisions. And it’s all nonconscious. We’re not aware that these emotions — what I call more broadly speaking this instinctual brain/body systems that we share with other animal species — have a profound influence on our decisions, and we aren’t aware of it.
Kevin Cool: Do most people know that?
Baba Shiv: A great question. Most people intuitively know that. I mean, for example, we might think that we’re being rational. But at the end of the day, what the rational brain is good at very often is not at being rational. What the rational brain is good at is at simply rationalizing what the emotional brain has already decided to do. It constructs all these narratives, all these stories, in support of what the emotional brain has already decided to do and we are unaware of.
Kevin Cool: Convincing ourselves.
Baba Shiv: Convincing ourselves.
Kevin Cool: Right.
Baba Shiv: So, it is almost that I think people intuitively know that from their life experiences is that they’ve been taught to do something different, and therein lies the conflict. And my goal is to tell people that, no, rely on your intuition out there, rely on your gut. It’s telling you something very useful going forward.
Kevin Cool: When is emotion a good thing when we’re making a decision and when is it a bad thing?
Baba Shiv: That is the right question to ask because it’s not about whether emotion is good or bad for decision making. You come to the conclusion it’s kind of almost a professorial answer, and that is that it depends. It depends on what will be the next question. It depends on if you want to get rid of biases. Most of the biases in decision making are rooted in emotion. So, if the goal of decision making, of the decision maker, is to make decisions where they’re not falling prey to biases, you want to keep emotion out of the picture, and you want to bring an aspect of reason into the decision making as possible.
But there’s a second goal of decision making, and that is you need to emerge from the decision feeling absolutely confident about the decision and the course of action you’/re adopting. Because if you emerge from the decision with doubts, that’ll give rise to downstream effects in the sense that if you face a roadblock, which is bound to happen after you make a decision because it’s never a straight path from A to B; there are going to be some bumps along the way. If there are going to be bumps along the way and you’re not confident about the decision, you’re more likely to give up too early and not persist in the course of action that you’ve adopted.
Kevin Cool: So, if science says that the rational part of our brain has such a small influence and emotion plays this large, why does it seem like we act as if we can make rational decisions, “Just give me the facts and I’ll make a good decision”?
Baba Shiv: Yeah. I mean, that’s, I think, coming from the traditional viewpoint that has come down the ages. When you go back to Plato, go back to Aristotle, go back to Descartes, the fundamental premise at that point in time and came down the ages was what I call the traditionalist view of decision making, was that emotion is like the wild horse that needs to be reined in, right? Because emotion, as I mentioned before, will give rise to a whole host of biases.
And as decision makers making very consequential decisions — making an investment decision, an acquisition decision, making a very senior hire, et cetera — we really don’t want to fall prey to biases. That is the way that the traditionalists have viewed this, which tells us that in order to make these consequential decisions, we need to, number one, deliberate on the decision: think about the pros and cons, what are the costs, what are the benefits, what are the value you’re going to get from a course of action, what is the probability.
So, these are all reason, the scientist way of thinking about a decision. And that is the reason why I think we have this embedded in our minds right from childhood that if you’re making these consequential decisions, be as rational as possible. But what we forget to understand is that we have evolved with emotion, and there has to be a reason for that. If emotion were irrelevant, we would’ve evolved very differently.
And the conclusion that we have come to from a lot of science that has come out since, I would say, the 1980s — and the major proponent of that was Antonio Demasio who was at the University of Iowa when I was there. He and his wife and his team have amassed a lot of evidence that without emotion, we’ll simply be unable to make decisions in the sense that we’ll make a decision, but if we have to stick to the decision, stick to the course of action that we have adopted and persist on that course of action, without emotion we’ll be unable to do that. In other words, the root of what we call decision confidence, the confidence and the conviction that you emerge from the decision, is fundamentally rooted in emotion.
Kevin Cool: And we do live in an age in which data rules in lots of situations and we have much more capability. And now, of course, artificial intelligence is enhancing that capability even more. But there does seem to be a growing understanding of the importance of storytelling, which is something that you talk about. How does that allow us to influence others who are making decisions?
Baba Shiv: Part of the way we think, the way we think could be one of them is going to be — the reflective side of the brain is about the reasoning side. I mean, humans are endowed with being able to reason: get the data, evaluate the pros and cons and so on. But there is another side of the brain, and we’ve evolved for that, and that is the way humans make sense of the world around us — not just the present but the past and projecting into the future — is in the form of stories. We construct narratives.
If you have an existing job and you have a new job offer, one of the fundamental ways by which we think about that new offer is in terms of constructing a narrative for ourselves where we are the protagonist in that story. And we’re asking ourselves, okay, going though that narrative, what are the emotions that are emerging from the story, because stories are infused with emotion. Whereas if you adopt the more logical side, you’re keeping emotion out of the picture.
And therefore, in a stage of the decision-making process where you don’t want to fall prey to biases, you don’t want to engage in storytelling, right? You have to make sure that all the data have been considered. But once you have all the data — And there’s only so much that you can do. You don’t want to fall prey to data paralysis or analysis paralysis because you can only get so much of data.
I’ll often hear people saying that “We are a data driven organization.” I’ll say, “Yeah, that’s why you’re slow at making decisions, because you make the decision and move on.” But when you have to move on, that logic has to be kept aside, and now you have to construct the story and say, okay, I have two courses of action. One, I can stick to the current job, which is going to construct a narrative for me, the team, my family, et cetera.
There’s going to be another option out there; I’m going to construct another narrative out there. Which of these two narratives are resonating with me at a gut level? And that’s what I would go with because the emotion is telling me that that’s the direction I want to go. And if I make the decision in that — if I adopt that course of action, I’m bound to be more confident about the course of action adopted.
Kevin Cool: You’re listening to If/Then, a podcast from Stanford Graduate School of Business. We’ll continue our conversation after the break.
Baba, you’ve said you think we as a society should be more artistic than we are scientific. Well, you’re a scientist — not an artist — so what makes you say that?
Baba Shiv: Okay, let me take a step back and answer the following way. I’m not saying one is good, one is bad. I’m saying that leaders need to develop skills of not just being scientists. And most leaders today are trained as being scientists making very reasoned decisions out there. What we need to have is a good balance of the scientific mind and the artistic mind because artists dream, and dreams are what inspire us.
Kevin Cool: A lot of your work has been about the placebo effect, which we usually think of in terms of medicine. Does the placebo effect extend to business decisions where the belief that something is going to happen positively is more important than the objective information we have that might suggest it wouldn’t?
Baba Shiv: So, here’s the way to think about it. In the real world, there are no successes or failures. Just think about it. You make a decision, there’s only an outcome. You’re just a brain that has to interpret that outcome as a success or a failure.
Kevin Cool: I see.
Baba Shiv: And any outcome is going to be in the form of a distribution. There are going to be some positives; there are going to be some negatives.
Now if you are confident about the course of action you’re taking. You have visualized the whole thing. You believe with true conviction that, yes, there are going to be stumbling blocks along the way, of course it’s going to happen, that’s reality, but I am going to reach an endpoint I’ll be happy with. If you have that conviction out there, and there’s an outcome which has got both positives and negatives, which side of the distribution are you going to sample from? Naturally, the brain is going to sample from the positive end of the distribution, and therefore it is going to become a self-fulfilling prophesy.
Take another leader who is in doubt after having made the decision. It’s the same outcome that has happened, again with the same distribution of positives and negatives. But that person who’s in doubt is more likely to sample from the negative end of the distribution. And therefore, that will again become a self-fulfilling prophesy because the data coming in suggests that this is not the course of action I need to adopt because I sampled from the negative end, and therefore I’m more likely to give up sooner. But if I just persisted for some more time, it would’ve become the right course of action to go. That’s the way to think about the placebo effect.
Kevin Cool: And this isn’t just a theory, right?
Baba Shiv: Right.
Kevin Cool: You did a study to prove this with wine tasting. So, tell us about that study.
Baba Shiv: So, here’s a study that we did. When I came from Iowa — I was at the University of Iowa, and I came to Stanford in 2005 — one thing that struck me was how many oenophiles out here. I mean, people love wine out here, and I came from a culture that wine was not part of the conversation.
And so, what intrigued me was that I would visit all these wineries, and what intrigued me was that people swore that the more expensive the wine is, the better it tastes. And the question I had was is this just a figment of our imagination or is it truly that the brain is extracting more pleasure when the wine is more expensive than the wine is less expensive, right?
So, here’s a study that we did where imagine you’re a test subject. You come into the lab and you’re told that you’ll be tasting 5 different California cabernet sauvignons. I’m not going to tell you the brand names. All I’m going to tell you is that the market prices of these wines arrange from $5 to $90. Okay, you’re going to taste these 5 different wines. And as you’re tasting these wines, I’m going to monitor your whole brain activation.
Imagine that the first wine that shows up on the screen is a $90 wine. Now you look at that piece of information. Wine is squirted into your mouth. We get you to swirl the wine in the mouth for about 4 to 5 seconds. You swallow the wine. And then you rinse it out. Next will be $45. It’s going to be squirted into your mouth, and so on and so forth. Large number of tries. It’s all happening in real time. And what we do is we conduct what is called a test of contrast. And there’s only one factor that changes across the trials, and that is the price. Because unbeknownst to you, you’re tasting the same wine.
And the question we’re asking here is that will the brain extract more pleasure from the wine if it thinks that it’s tasting — if it expects to taste a higher priced wine. And that’s exactly what we find, that indeed that the area of the brain that codes for pleasure in real time shows greater activation when the brain thinks it is tasting a higher priced wine that is tasting a lower priced wine, even though you’re tasting the same wine. And that’s where what you expect, you manifest.
Kevin Cool: I see.
Baba Shiv: And that’s why I said that I have no successes or failures in life. There are only outcomes. It is the brain that has to interpret that outcome as a success or failure. And that’s what is being shown in this wine study as well.
Kevin Cool: And leaders who have that sort of deep conviction and belief in outcome, we’ve seen examples where it has gotten them in trouble.
Baba Shiv: Absolutely.
Kevin Cool: Let’s take an example of Sam Bankman-Fried, right?
Baba Shiv: Absolutely.
Kevin Cool: Where he had certainly a conviction that he had sort of an idea of where he wanted to take this company, and yet somehow wasn’t able to see through the hubris or the mistakes or even the illegalities of what was going on there. So, how do we put a governor on conviction so that it doesn’t lead to hubris?
Baba Shiv: This is a great question, Kevin. It’s a classic phenomenon of bias in the decision-making literature called the escalation of commitment bias. It says that you’ve made a decision, and the information that is coming in about the outcomes seems to suggest that you need to revisit the decision; there’s something going wrong.
But if you are totally delusional and totally convinced that it’s a course of action, you start throwing good resources, good money, after what is turning out to be a bad decision. So, you don’t want to fall prey to those biases. So, you don’t want delusion to carry you away. And unfortunately — or fortunately — it is the delusional mindset that is going to give rise to conviction.
So, what you need to do is from time to time you need to keep yourself in check. So, what I tell leaders to do is that maybe every quarter, maybe every year, what you do is to conduct a premortem in the sense that you are delusional about future success. That’s what is giving rise to the conviction. That is what is causing you to ignore the information coming in seems to suggest that you need to revisit the decision.
What I say is that from time to time, you again become an artist. But this time instead of thinking about all the positives, think about all the negatives. How will this decision end up being the worst decision I ended up making? So, it allows the brain now to have a balanced view of the future — the future isn’t certain — instead of simply sampling from the positive end which is what, when you’re delusional, you do.
Rather than just focusing on the positives, from time to time force yourself to focus on the negatives so that the brain has both pieces of information out there and is wiser going forward knowing that there are negatives that I need to take care of so that the negatives will fade away and the positives will [emerge] into the future. That’s the way to think about it.
Kevin Cool: That would seem to also argue about having some diversity of points of view, values, and so on, on an executive team.
Baba Shiv: Absolutely. So, think about the following. For me, the bigger thing is not about leaders. It’s not about the delusion that leaders go through. My thing is the opposite problem, and that is leaders have a habit. Today, when I look at leaders out there, they have a habit of saying it cannot be done. “It cannot be done. It cannot be done.” We impose constraints on ourselves. For no rhyme or reason, we compose these constraints. And these constraints are inevitable because as we gain experience, experience is a double-edged sword, Kevin, right?
On one hand, experience allows the leader to make decisions out of their gut. Pattern recognition emerges and they’re able to recognize patterns and make these decisions. But the problem with experience is that you’re also going to experience certain successes along the way, you’re going to experience failures along the way. Fortunately, or unfortunately, because of the notion of loss aversion, the failures are going to loom larger than the successes over a period of time. And therefore, naturally a leader is going to become more conservative as the time goes by. So, you want to have a team of people with diversity.
And I’m not talking about diversity in terms of skin color — that’s also important — but I’m talking about diversity in terms of backgrounds, knowledge, et cetera. I would say, you know what, I have a lot of leaders who will hire summer interns, 20-year-olds. And what kind of tasks do they give them? Well, metaphorically, make the copies or get me some coffee. I mean, those are the kind of the trivial things that they’re asked to do.
Kevin Cool: Grunt work.
Baba Shiv: Grunt work. Rather than that, they have no idea of constraints. You have as a leader, but they have no idea of constraints. You give them a task that is almost impossible to solve. Who knows? They might come up with a solution. All you need is one good idea to take forward. That’s why I say, that’s why diversity is so very crucial. And part of diversity, let’s not forget, is age diversity.
Kevin Cool: So, Baba, why do you study decision making? What led you to this area of research?
Baba Shiv: I am the most irrational of decision makers out there. Most academics would say that you study your weaknesses, and one of my weaknesses is I’m very irrational as a decision maker in the sense that the rational thing to do is when you’re making these very consequential decisions, you spend a lot of time deliberating on the decision: evaluate the pros and cons, talk to people, seek opinions, and make up your mind.
Most of my consequential decisions — who I’m going to marry, for example — took me about 30 minutes to decide. My career path was going along, becoming the CEO of a multinational company. And then one of my favorite professors in my MBA program, he asked me a question, “Have you ever thought of becoming a professor?” And I said, “No, sir.” He said, “You should.” And then four-and-a-half months later, he died in an air crash. And I go to his memorial and I ask people, “Hey, did he ever ask you to be a professor?” No one said yes. And I said maybe he saw something in me.
That decision to quit my career path to becoming the CEO of a multinational company — and I was going down that path and I knew I could be successful there — to completely abandon that and adopt a completely new course of action. I mean, what’s going to happen? I didn’t even know what a [PC] was; that took me a couple of days.
So, I’m one of the most irrational of decision makers. And that’s what got me to asking this fundamental question, and that is, is a good decision really based on reason or is it based on emotion? And that’s been the hallmark of a lot of the work I do, asking these fundamental questions where people have certain assumptions about human behavior, what is the appropriate thing to do. And I question them and I say, “Why not the opposite?”
Kevin Cool: If/Then is produced by Jesse Baker and Eric Nuzum of Magnificent Noise for Stanford Graduate School of Business. Our show is produced by Jim Colgan and Julia Natt. Mixing and sound design by Kristin Mueller. From Stanford GSB, Jenny Luna, Sorel Husbands Denholtz and Elizabeth Wyleczuk-Stern.
If you enjoyed this conversation, we’d appreciate you sharing this with others who might be interested and hope you’ll try some of the other episodes in this series. For more on our professors and their research, or to discover more podcasts coming out of Stanford GSB, visit our website at gsb.stanford.edu. Find more on our YouTube channel. You can follow us on social media at StanfordGSB. I’m Kevin Cool.
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