NCCR Finrisk Doctoral Workshop, June 12, 2006, Gerzensee

1. NCCR FinriskDoctoral Workshop, June 12, 2006, Gerzensee Emotions meet Finance Emotions meet Finance Klaus Scherer Astrid Hopfensitz

2. The many fathers of affective science

3. R. J. Aumann T. C. Schelling, 2005 conflict and cooperation, game-theory analysis The affective revolution: Nobel prizes in Economics Herbert Simon, 1978 bounded rationality, emotions as interrupts Amartya Sen, 1998 affectice aspects of commitment and justice Daniel Kahneman, 2002 heuristics, affective bases of judment and decision Reinhard Selten, 1994 affect in non-cooperative games Vernon Smith, 2002 experimental economics

4. Objectives of the NCCR in Affective Sciences • Scientific research in the behavioral, human, and social sciences • Establish a truly interdisciplinary network of researchers studying affective phenomena • Address affect and emotion for the first time in a systematic and integrated way, on multiple levels of analysis • Encourage cutting-edge research on emotion, using advanced methodology • Academic education and research training • Increase the critical mass of excellent researchers with interdisciplinary training and a strong ability for networking • Furthering the academic advancement of women • Knowledge transfer and application in society • Identify means for a realistic transfer and application of scientific understanding of emotional phenomena • Provide pertinent data and insights to orient political, social, and economic decisions

5. Existing research networks in Affective Sciences:Critical mass in Swiss universities Zurich Economics Psychology Psychology Neuchâtel Bern Sociology Fribourg Criminology Political Science Philosophy Lausanne Psychology Psychology Education Law Geneva Neuroscience Philosophy History of religion Psychiatry Sociology Literature

6. Component process model Appraisal and efferent motor expression Memory Motivation Reasoning Self Concept Attention Normative Significance Event Relevance Implication Coping this is novel and important this will obstruct my goals I can deal with this this is unfair and immoral

7. What is the mechanism that produces facial expressions? An innate affect program that produces an emotion-specific pattern when triggered by an event? A sequential unfolding of facial movements resulting from successive appraisals of the situation? OR Watch now! Watch now! The apex of the expression is the same but the process is different. Research on the dynamics of facial expression is required to settle this question that has important theoretical implications.

8. Methodological development Life-span development and transitions Pro- and antisocial affect and behavior The nature and consequences of gender differences Projects and transversal modules Emotion regulation Social functions of emotion Emotion elicitation and perception Appraisal and Motivation Scherer/Gendolla Regulation and Family Perrez/Reicherts Norm compliance Fehr Response patterning Scherer/Kaiser Work and Emotions Semmer/Tschan Values and Norms Mulligan Neural architecture Vuilleumier/Landis Executive functions Van der Linden Emotions and Law Flückiger/Robert/Roth Myths and Rites Borgeaud

9. Appraisal and motivational processes in the elicitation of emotionKlaus Scherer & Guido GendollaUniversity of Geneva, Psychology Project 1 The elicitation of emotional experience is explained by the current motivational state and the process of subjective appraisal of events. Topics include: • The dynamic unfolding of the appraisal process • The role of motivation for mobilization of effort and the appraisal of performance outcomes • Dispositional biases in appraisal • Social and cultural dimensions of appraisal

10. Project 1 meets Finance Finance professionals may face specific conditions for appraisal: High stakes, uncertain consequences, high urgency, limited control and coping ability, conflicting norms and expectations. Potential research topics: • Appraisal biases in investors: Myopic loss aversion • How traders appraise significant events • Trader types: Dispositional appraisal biases • Emotional climate in the stock market due to shared appraisals • The role of attention in continuously ongoing appraisal processes • Skills in appraising client reactions

11. Response patterningKlaus Scherer & Susanne KaiserUniversity of Geneva, Psychology Project 2 Emotional response patterning is expected to be driven by successive appraisal outcomes. Topics include: • Experimental manipulation of appraisal criteria and measurement of the effects on different response domains • The relationship between gestural, facial, vocal and postural expression of emotions • Measurement of gestural, facial, vocal and postural expression in dyadic interaction

12. Project 2 meets Finance The special nature of the appraisal processes in finance contexts may generate specific types of response patterning with respect to motor expression, physiology, and conscious feelings. Potential research topics: • Mode synchronization given rapid reappraisals • Emotional competence in response regulation generating trust • Emotional competence in recognizing others' emotions • Emotion work with clients • Emotional contagion on markets: emotions can spread

13. Illustrative studies • Lo and Repin, The Psychophysiology of Real-Time Financial Risk Processing, Journal of Cognitive Neuroscience, 2002 • Measure physiological reactions during real trading • Combine these observations with market data • Findings: • Differences in physiological reactions dependent on behavior of market. • Individual differences between traders.

14. project A project B p= 1/2 (1- p) = 1/2 0 Illustrative studies • Analysis difficult in such ‘real’ decision situations. • - It is difficult to infer emotions exclusively from physiological measures • Emotional reactions spill over from one situation to the next. Difficult to disentangle effects. • Situation often involves many factors unknown to researcher. • Therefore most studies have focused on risk taking for simple gambles • Bosman and van Winden, Global risk, Effort, and Emotions in an Investment Experiment, 2001 • Hopfensitz and van Winden, Dynamic Choice, Independence and Emotions, 2006 • Findings: • - Dependent on risk: different emotions are considered • - Dependent on situation: same emotions have different effects.

15. Neural architecture of emotion perception and affect-related cognitionPatrik Vuilleumier & Theodor LandisUniversity of Geneva, Neuroscience Project 3 Examining the cerebral bases (anatomical and temporal patterns) of affective and social perception, using brain-imaging techniques. Topics include: • Brain activation in response to faces displaying different emotions and to the subjective appraisal of their affective value in different contexts • The role of attention in affective processing • Neural bases of cognitive control and individual differences in emotional processing

16. Project 3 meets Finance Neurofinance: What are the underlying neural mechanisms in risk assessment, utility inference, and decision making Potential research topics: • Neural bases of intuition • How is risk interpreted in the brain, e.g. in ‘Gambling Tasks’ • Neural bases of individual differences: Impulsivity, sensation seeking • Hyperbolic discounting: immediate gratification is special (McClure et al 2004, Science) • Risk versus Ambiguity: different neuronal reactions

17. Individual and social regulation of emotions in the familyMeinrad Perrez & Michael ReichertsUniversity of Fribourg , Psychology Project 4 Understanding emotion regulation as underlying processes of pro- and antisocial behavior, with a particular emphasis on affective relationships in the family. Topics include: • Elaboration of a taxonomy of individual and social emotion regulation behaviors • The effects of different types of social emotion regulation responses in daily couple and family interaction on parents’ well-being, parenting, and child behavior • Defining behavioral rules for adaptive social emotion regulation

18. Project 4 meets Finance Given the high level of stress and emotionality of work in finance, stress resilience and adequate coping strategies are at a premium. So is social regulation in the work team and the family. Potential research topics: • Asssessing patterns of stress experiences and resilience • Emotional competence in individual and social regulation • Adequate assessment of coping potential • Advanced methods of experience sampling

19. Work and emotions: Effects onwell-being, health, and productivityNorbert Semmer & Franziska TschanUniversity of Bern; University of Neuchâtel, Psychology Project 5 Examining working conditions in terms of job design and social relationships as they relate to affective experience, especially stress. Topics include: • Assessment of working conditions, personal characteristics, social relations, work-life balance, and private stressors and resources • Measuring the effects on health, well-being, attitudes, and commitment toward one’s organization in a major longitudinal survey and in-depth studies

20. Project 5 meets Finance Finance professionals work in challenging environments at a high level of pressure and risk. In addition to difficult working conditions often their self is at stake. Potential research topics: • Competition and envy: influence on risk taking • Burnout and emotional work • Funds managers: impact of shame / guilt on behavior • Spill over of emotions from work – life, or from work – work • Values and the role of the self

21. Emotion regulation, impulsivity, and executive functionsMartial Van der LindenUniversity of Geneva , Psychology Project 6 Impulsivity as an important aspect of self-regulation. Topics include: • The different components of impulsivity • The various cognitive processes (and related brain substrates) that contribute to these dimensions of impulsivity • The development of impulsivity in adolescence and its contribution to the development of antisocial behaviors

22. Project 6 meets Finance Given the time pressure and urgency of decisions as well as high stakes, personality dispositions in impulsivity may play a significant role. Potential research topics: • Executive space in cognitive processing • Factors and components of impulsivity • Can hyper-impulsivity be treated? • Impulsivity and anti-social behavior

23. Emotional foundations of norm compliance and norm enforcementErnst FehrUniversity of Zurich, Behavioral Economics Project 7 The role of emotions in the pro- and antisocial behavior of ordinary people and criminal offenders. Topics include: • Which emotions are involved in norm compliance and enforcement ? • What is the neural basis of norm compliance and enforcement ? • Do criminal offenders exhibit fewer or different emotions when compared with non-criminal control groups ? • Does the pattern of brain activation associated with norm compliance and norm violation in criminal offenders differ from the pattern in non-criminal controls ?

24. Project 7 meets Finance Neuroeconomics and Neurofinance – the neural basis of normative behavior and equity decisions. Potential research topics: • In many market settings contracts are not enforceable: necessity of prosocial emotions (trust) • The ‘just world’ phenomenon (Melvin Lerner) • Please ask Ernst Fehr!

25. Emotion, values, and normsKevin MulliganUniversity of Geneva, Philosophy Project 8 Evaluation of the presuppositions embodied in the conceptual frameworks used in current work on affective phenomena using conceptual analysis, discussion of examples, and theory construction. Topics include: • Are affective phenomena simply by-products of desires?  • Are emotions appraisals?  • Are norms more fundamental than values?  • What is the relation between guilt and norm violation?

26. Project 8 meets Finance Philosophy may help to examine some fundamental issues concerning the nature of appraisal and emotional reactions in finance contexts . Potential research topics: • The role of values and utility • Conflict between norms and desires • Sources of shame and guilt (e.g., in investment consulting

27. The importance of emotions in social and legal regulationAlexandre Flückiger, Christian-Nils Robert,& Robert RothUniversity of Geneva, Law Project 9 Law may be strongly based on reason, but it is not immune to emotion. The project explores the currently observable “emotionalization of law”. Topics include: • Law as the product of emotion. e.g., the growing importance of victims in legal proceedings • Emotion as a support for, or even a means of regulating social behaviors, e.g. the promotion of organ donor campaigns as an example of “soft law”

28. Project 9 meets Finance The legal context of finance and its emotional ramifications. Potential research topics: • Soft law – regulation and control in financial markets • Insider trading and popular response

29. Myths and rites as cultural expression of emotionPhilippe BorgeaudUniversity of Geneva, History of Religion Project 10 Myths and rites from ancient societies afford an ideal humanistic laboratory for an objective analysis of emotions in their relationship to normative and disruptive standards of behaviors. Topics include: • The study of ancient literary descriptions and iconographical representations of emotions in Egypt, Mesopotamia, Israel, Greece, Rome, as well as in ancient Christianity and Islam, with some incursions into Far Eastern cultures • A comparative reflection on the anthropology of the person : self-definitions of the human (generally males) in contrast to definition of the "others" (strangers, females, or gods)

30. Project 10 meets Finance Historical and anthropological issues Potential research topics: • History of trust in markets (e.g. diamond traders, …) • Religious constraints of financial activity • Social values and intrecultural differences

31. Transversal modules: overview and aims Four transversal modules integrate overarching issues into the research design of several projects, consider the implications of different studies for knowledge transfer and application, and synthesize the relevant results. • Pro- and antisocial behavior Study determinants of prosocial and antisocial behavior and underlying mechanisms. • Gender differences Systematically assess gender differences in all empirical studies and diagnose potential causes. Identify remedial action on the basis of the results. • Life span development Assess age group differences whenever possible. Diagnose potential causes due to changes in cognitive development, socialization, motivation, etc. Identify risk factors and potential for remedial action. • Advanced methods Identify common methodological needs. Develop and share a comprehensive method toolbox. Promote mutual fertilization of methodological approaches.

32. Focussed interdisciplinarity • Common focus of research: affect • Participation of most relevant disciplines • Multiple levels of analysis • Transversal integration of perspectives • Unified concepts, methods, and tools • Collaboration with major international centers of learning and research

33. Added value through synergy The added value specific to the NCCR is achieved through four mechanisms: • 1. Export/Import of competences: No project can be carried out as planned without the collaboration of other NCCR members • 2. Transversal modules: Cross-project syntheses will be achieved for four important thematic areas • 3. Inter-project studies: Ideas for new collaborative research between projects are constantly emerging • 4. Interdisciplinary education and trainingprogram: Fundamental research perspectives are evolving

34. The future of emotion The members of the NCCR will also address challenging issues with respect to the evolution of ancient emotion mechanisms in modern society, such as: • Is shame disappearing as a consequence of growing hedonism, feelings of entitlement, and demands for individual freedom from social constraints? • How does the development of ever more efficient forms of communication and entertainment affect emotion and emotion regulation? • How will emotional avatars change our relationship to machines? • Could social and technological progress overtax the inherent flexibility of the emotion mechanism and outrun its evolution?

35. Further info: www.affective-sciences.org