What is... | September 9, 2013

What is a hot state in decision making?

All hot and bothered? Don't let it affect your finances - read on to learn why.

It’s not unusual to surrender to an excited or "hot" state when buying your first car. A hot state is an example of a thinking trap where high levels of emotion can affect the rational process of making a decision. These states can affect your pocket, but there are ways to pour cold water on these irrational choices and act in a more measured manner.

Classic car for sale: “only” 17 previous owners
It’s not unusual to surrender to an excited (“hot”) state when buying your first car. The heady aroma of faded leather and electric patter of the chummy salesman only serve to heighten your mood – and ignore the 320,000 kilometres on the clock and fractured service history.

But it makes sense to be aware of such hot states. They are an example of a thinking trap (where our ability to think rationally is hampered) and these illogical states can often affect our pockets.

Pouring cold water on a hot decision
Levels of “heat” can influence decisions on a wide scale. At the beachfront arcade you splash out on an outrageous holiday outfit – but quickly realise you’ll never wear it. Why did you make such a questionable call? Perhaps the discarded work phone and intoxicating climate fuels your excitement, but what were you thinking?

This relatively inexpensive example highlights how difficult it is to predict how you will feel in the future about a situation now.
Irrational enthusiasm can also affect life-changing choices like buying a house. Say it’s a beautiful day and the reprieve from your cramped quarters is bordered by a stunning garden. It ticks all the commuting boxes. It’s a steal. You’re excited. How you neglected to notice the cluster of snarling Dobermanns next door while in your fervent state could haunt you for years.

Not just the weather – the difficulty of forecasting
Decisions like these are also examples of poor affective forecasting – where it is difficult to imagine how you will react in the future especially when strong emotions are involved.

As this article explains, people frequently under or overestimate how much pleasure or discontent future events will bring. In a hot state we are lured by the prize (the elevated sense of arousal), while we may ignore or downplay other factors that may have long-term effects.

How a cold front can save the day
Fortunately there is help at hand to alleviate the impact of decisions driven by high levels of interest, activity or emotion. A “cold” (more measured) state, as the name suggests, is the opposite of a hot state and can provide a useful buffer when making important choices – financial or otherwise. Think of a cooling off period when you take out insurance as a handy analogy.

Cold states occur when people experience a low level of arousal or emotion (perhaps through indifference, boredom or lethargy). Yet this state may be ideal when considering where to invest your pension fund. You’re not excited, nor whisked along by hype and you may be more inclined to take a broad number of crucial issues into account.

So why not try and self-induce a cold state before you make a vital decision or commitment? If you’re swept along by the euphoria of a hot state take time out to imagine the wider implications of buying your dream car: running costs, insurance and how you might feel when repair bills come in. Taking a cold look at all factors in a decision will help you make clearer choices, stave off buyer’s remorse and possibly save money.


eZonomics team
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