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Emotions make significant difference in executive decision

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Staff Writer | August 18, 2016
Corporate Visions's experiment showed that executives are more willing to make a risky business decision when the alternative is framed in terms of loss instead of gain.
Business decision
Psychology    Executives are not hyper-logical
In fact, even though the "math" was exactly the same in both options, the words used to present the choices affected executives' willingness to make a different choice by more than 70 percent.

For the experiment, Corporate Visions contracted with Dr. Zakary Tormala, an expert in persuasion and messaging who created the research and conducted the study. Separately, Tormala is a social psychologist at the Stanford Graduate School of Business.

"This research debunks the long-held and promoted perception that executives are hyper-logical and numbers-oriented in their decision-making, and that marketers and salespeople need to message exclusively to their sense of reason because of it," said Tim Riesterer, chief strategy officer at Corporate Visions.

"Turns out, executives are just as much influenced by emotions as everyone else, and as this study shows, they're more willing to take risks if a marketing and sales message is crafted appropriately."

The research was organized around the concepts of "loss aversion" and "risk-seeking," which together make up the behavioral economics concept called Prospect Theory, developed by social psychologists Daniel Kahneman and Amos Tversky.

In sum, Prospect Theory holds that humans are two-to-three times more likely to make a decision or seek a risk to avoid a loss than to attain a gain.

The online experiment involved 113 participants, all executives from a range of industries, including oil, software, finance, aerospace, etc., and occupying a diverse set of high-level roles in their companies (e.g. president, VP, CEO, CFO, etc.).

The participants' decision-making behaviors were tested in a business scenario, as well as in two personal decision-making scenarios. For the business scenario, half of participants were placed in a "gain frame" scenario, where the choices were described in terms of how many facilities and jobs would be saved.

Conversely, the other half were placed in a "loss frame" scenario, where the facilities and jobs in each choice were described in terms of how many would be lost.

While all the options were mathematically identical in both the "gain" and "loss" frame conditions, the study revealed that participants in the loss frame were more willing to make the risky business decision by more than 70 percent.

The same held true for both personal decision-making scenarios where the influence of loss aversion on the executive participants was shown to be similarly pronounced.

"These findings show that you'll significantly improve your chances of persuading executives to change or take a risk – which your solution typically represents – by positioning the alternative as a loss condition," added Conrad Smith, vice president of Consulting for Corporate Visions and co-developer of the study.