The biology of decision-making

By Rommel Salvador and Golnaz Sadri

Executive Summary
In this connected and data-driven world, many discount the idea of making decisions based on your feelings, your gut or intuition. But new research shows that biological processes, including hormones, stress, sleep, your gut and your feelings, can have more of an influence than previously thought. Understanding their effects and factoring them in can help managers understand their own decision-making processes and those of their subordinates.

Decision-making is the process of selecting one thought, belief or course of action over another. Researchers estimate that an average adult makes 35,000 decisions every day. These range from very simple routine decisions, such as how to get to work in the morning, to more complex, nonprogrammed decisions, such as developing a new product. A search on of books on decision-making led to 64,509 results, with a great deal of attention focused on how to make good decisions and avoid bad ones. For example, in The Greatest Business Decisions of All Time, Verne Harnish explored business decisions that have led to great successes for modern companies and lists his selection of the five greatest business decisions of all time. In reverse order:

  • No. 5 was the decision by Jack Welch at General Electric to fund a world-class training center, which resulted in the development of hundreds of great leaders who practice the "GE Way."
  • No. 4 was Samsung's decision to launch a sabbatical program that sends top talent all around the world. Harnish credited this program for Samsung's success as a global brand.
  • No. 3 was Sam Walton's decision to hold Saturday morning, all-employee meetings at Walmart, which Harnish suggested led to a culture of rapid information and decision-making and the creation of one of the biggest companies in the world.
  • No. 2 was Apple's decision to bring back Steve Jobs a decade after firing him, which, in turn, led to innovative product development and the creation of one of the most valuable companies in the world.
  • Harnish's No. 1 pick for the greatest business decision of all time is Henry Ford's decision to double the wages of his workers. This enabled him to attract top talent and insured that his workers were able to afford the products they were building.

We will examine the decision-making process and look at five biological influences that impact this process: hormones, stress, sleep, gut and feelings. Understanding these factors can help managers not only "manage" their own decision-making processes, it can help them offer guidance to their charges by understanding how and why their employees do what they do.

The decision-making process

Decision-making has been conventionally modeled as a six-step process:

  1. Identify a problem or need for a decision. For example, XYZ Co. is expanding and has decided that it needs a new engineer.
  2. Identify the decision criteria. Those involved in the hiring process at XYZ need to determine the preferred educational and technical background for the new hire. Do they want to hire someone who has similar expertise to their current engineers, or do they want to diversify the technical expertise available to them? Other important criteria might be fit with the organization's culture, ability to work with the current team of engineers and so on.
  3. Allocate weights to the criteria. Some organizations place high value on technical expertise, while others place a higher value on fit with the organization's culture and ability to work with the current team.
  4. Develop alternative solutions. XYZ now needs to advertise the position, review applicant resumes and invite suitable candidates for interview.
  5. Evaluate the alternatives. Those involved in the hiring process at XYZ need to assess candidates against the criteria identified in steps two and three above and compare across candidates.
  6. Select the best alternative. Based on an analysis of the data gathered throughout the recruitment process, XYZ makes an offer to its best applicant.

An implicit expectation shared by many people is that decision-making follows a rational process. We assume that decision-makers are both able and willing to identify the full range of relevant options in an unbiased manner and select the option that is "clearly" the best based on rational, objective criteria.

However, based on research in psychology, we now know that decisionmaking is a boundedly rational process because information at each stage of the six-step process identified above might well be limited and incomplete. In the example described above about hiring an engineer, it is not possible to know everything about candidates based on resumes and interview information.

Important data such as work ethic and ability to work effectively with the rest of the team does not become apparent until after a person has been hired and worked within the organization for some time.

Additionally, when we hire, we are projecting into the future and making assumptions about employee and product supply and demand, assumptions that may or may not pan out.

In some instances, more choices might lead to information overload and generate anxiety in the decisionmaker, so we avoid seeking an infinite number of alternatives. In our example, there is likely to be a point at which we stop accepting resumes, interviewing candidates and acquiring information about selected candidates because of this tendency for the mind to become overloaded at a certain point.

We suggest that this boundedly rational decision-making process is explained, at least in part, by our bodies, our very own biology. Among the biologically related factors that account for our decision-making are our hormones, stress, sleep, gut and feelings. How each of these biological factors affects our decision-making is described next.

Blame it on the hormones

Hormones are chemicals that are generated by our endocrine glands and regulate bodily functions such as tissue development and calorie consumption. A scholarly review by Steven J. Stanton, published in Hormones and Behavior in 2017, summarized research findings on the effects of certain hormones on decision-making. Testosterone, a hormone associated with the development of reproductive tissues as well as muscle and body hair, has been shown to facilitate greater risk-taking in financial or investment choices.

While testosterone is present in both men and women, it occurs at levels seven to eight times higher in men than in women. This likely explains the consistent findings in research that on average men make riskier choices than women, in financial matters as well as in a variety of other decision-making tasks.

Other studies show that men tend to be more tolerant of a greater range of uncertainty in outcomes. For example, one study revealed that while only 36 percent of female MBA students preferred a risky career in finance (e.g., working as an investment banker or trader, where financial incentives greatly fluctuate), 57 percent of male MBA students did so.

Higher levels of testosterone are associated with the propensity to engage in risky decision-making by both men and women, as women with higher levels of testosterone tend to make riskier decisions than women with lower testosterone levels.

Stanton also highlighted the effect of testosterone on product choice. Specifically, males with greater prenatal (i.e., in the womb) testosterone exposure preferred soda brands that were deemed more masculine (e.g., regular Coke as opposed to Diet Coke) and dressed more often in stereotypically masculine colors (e.g., blue or gray, as opposed to purple or light red) than men who had lower levels of prenatal testosterone exposure.

These studies show that the propensity to make risky decisions as well as our preferences for certain product characteristics are driven, in part, by our biology. This can help us to understand and develop a higher degree of tolerance both for ourselves as well as for others whose decision-making is more or less risky than our own. It is important to note that the role of hormones in decision-making extends to the realm of stress, as described in the next section.

The good and the bad of the stressful

Stress is typically defined as the response of our body to any demand for change, such as when an individual is prevented from attaining an important goal or when there are threats to one's survival, safety, social status or self-esteem. Stress has been shown to impact people psychologically, physiologically and behaviorally.

Sarah Klein on details the physiological response we have to stress. When an individual experiences stress, Klein reported, the brain sends a message to the adrenal glands, which respond by producing adrenaline, commonly called the "flight or fight" hormone. Adrenaline creates a surge of energy and assists with immediate reactions to stressful situations.

In response to stressful situations, the adrenal glands also release norepinephrine. Norepinephrine makes us more aware, focused and responsive. It also helps the body move blood flow away from areas like the skin toward more essential areas like the muscles to assist in immediate reactions (like fleeing from danger).

The third hormone that is released in the bloodstream in stressful situations is cortisol. It takes several minutes to feel the effect of cortisol. This time lapse exists because the part of the brain called the amygdala first has to recognize a threat; then it sends a message to the hypothalamus. The hypothalamus releases the corticotropin-releasing hormone, which then tells the pituitary gland to release the adrenocorticotropic hormone, which, in turn, tells the adrenal glands to produce cortisol.

Cortisol helps the body survive by maintaining fluid balance and blood pressure. However, when the body keeps releasing cortisol, it creates health problems. Excessive levels of cortisol can suppress the immune system, increase blood pressure, increase blood sugar, decrease libido, produce acne and contribute to obesity.

There are two types of stress that we experience: Acute or short-term stress (such as being stuck in a rare and unusual traffic jam) and long-term or chronic stress (such as being stuck in several traffic jams every day). The impact of each of these on our decisions varies.

Researchers from the University of California, Davis examined the effect of inducing acute stress in the form of simulating a job interview in front of a live panel of harsh evaluators. Decisionmaking was measured by performance on the adult decision-making competence index, a measure recognized as the gold standard of decision-making proficiency. This study found that acute stress improved participant decision-making accuracy and consistency.

Acute stress also has been shown to affect altruistic decision-making. In an experimental study, researchers from Germany found that young men 18 to 28 years old who were subjected to acute stress were more inclined to make choices that benefitted another individual when compared to men who were not subjected to stress at all. This was true even in situations where there was a personal inconvenience or cost to the decision-maker.

Chronic stress, on the other hand, has a different effect on decision-making. In a combination of field and experimental studies, a team of researchers led by Narayanan Kandasamy from the University of Cambridge found that chronically raised levels of cortisol, which correspond to the experience of chronic stress, led to greater risk-aversion in decision-making, indicating preferences for choices with lower financial returns but also less uncertainty.

These findings suggest that regular, long-term experience of stress makes people, on average, decide more cautiously and conservatively. While this is the kind of decision-making that may lead to individual and organizational survival in stable business environments and industries, it is decision-making that is likely to be dysfunctional and maladaptive in many of today's industries, which require innovation and rely on rapidly changing competition and information technology.

The results of the impact of stress on decision-making are consistent with the "inverted U" relationship between stress and job performance. In the case of decision-making, some level of acute stress can lead to improved decisionmaking. On the other hand, chronic stress can inhibit creative and bold decision-making that may be critical for certain industries and work environments. Given that chronic and high levels of workplace stress have also been documented to lead to illnesses such as coronary heart disease and to psychological states such as anxiety, finding an optimum level of stress should become a priority for managers and professionals.

Sleep – yes, it's important

Arianna Huffington and a number of other public figures have been advocating for greater amounts of sleep for enhanced well-being and "better living." In terms of decision-making, the phrase "I'll sleep on it" is a response we hear quite often, perhaps subconsciously revealing our commonly held assumption that sleeping improves the quality of our decisions.

Research evidence supports the idea that adequate amounts of sleep improve cognitive functions that are critical for effective decision-making. Taking a midday nap improves memory, which is critical for comprehensive decisionmaking. Experiencing deep sleep, which comes with an extended period of time asleep, increases creativity and flexibility in thinking that is likely to improve developing alternative solutions to a problem (which is step four of the decision-making process described earlier).

Sleep loss does not significantly impair rule-based decision-making – the type of decision-making that involves clear-cut choices or those that are performed on an algorithmic basis. Loss of sleep also does not slow down our response times to many types of nonmoral dilemmas.

However, sleep loss has been found to have a negative impact on our prefrontal cortex, the part of the brain that plays a major role in prioritizing, processing competing pieces of information and the ability to ignore external distractions. As an example, one night without sleep leads to a loss of hand-eye coordination at a level equivalent to that of legal intoxication. Lack of sleep also substantially diminishes decision-making that requires creativity and innovation.

So, if success and excellence in our organization or industry depends on decision-making that is creative and flexible, then ensuring we have sufficient amounts of sleep ourselves and promoting a workplace culture that fosters adequate amounts of sleep is critical. This would stand in contrast to many organizational cultures that reward working long hours at the expense of sleep.

Yes, your gut instinct can help

In everyday language, we use the term "gut" to refer to visceral, seemingly unexplainable, intuitive reactions we have during or immediately following the process of making judgments and decisions.

There has been substantial research on the role of the enteric nervous system, which is a network of more than 500 neurons embedded in our gastrointestinal wall, extending from our esophagus to our anus. When we point to our abdominal region and bring up our "gut" as a basis for our decision or choice, we are not simply talking metaphorically. Instead, scientists have found that this enteric nervous system is actively interacting with our brain and central nervous system, functioning as a "second brain" that shapes our choices.

Knowing this, should we trust our "gut instinct"? Research suggests that the answer is "yes," particularly when the task relates to things that cannot be meaningfully broken down in terms of smaller parts but rather need to be assessed as a whole.

For example, when deciding on one piece of advertising copy over another, one can consider each of the visual elements of the ad independent of the other elements. For example, an ad consists of elements of color, layout, message, scale and font. However, the whole advertising image itself is more than just a sum of these various elements. In this case, relying on one's gut to make a decision to approve ad copy makes more sense than ignoring one's gut.

Trusting our gut instinct is also quite useful when the decision involves matters we actually have expertise in, something like cars, vacation options or food choices. The reason behind this is that what we refer to as our gut is actually a synthesis of patterns and data we have recognized as leading to better judgments and choices in the past. It is a form of relying on our tacit or experiential knowledge.

The main takeaway from the research on the relationship between the gut and decision-making is to pause and check our gut when we are about to make a decision. This is a low-cost and highly effective strategy to make a better decision.

Something more than feelings

Feelings consist of emotions and moods. Emotions are affective responses to a particular person, thing or event. Moods are feelings that arise without a conscious stimulus or trigger. Emotions and moods can be positive or negative, and our responses to them vary on a continuum from very weak to very strong.

Traditionally, decision-making has been considered a process that involves merely thinking. The best decisions were thought to be those that were made emotion-free, as emotions were believed to be disruptive to rational thought.

However, more recent research shows that decision-making is a process that involves both thinking and feeling. Feelings can have a positive impact on decision-making.

For example, in a simulation involving stock investors, Myeong-Gu Seo and Lisa F. Barrett in Academy of Management Journal found that stock investors who experienced more intense feelings, both positive and negative, during trading ended up with a higher level of stock performance.

We suggest that under certain conditions, intense feelings act as forms of acute stress. As described above, acute stress causes the body to release adrenaline, norepinephrine and cortisol into the bloodstream. These hormones result in a surge of energy and make us more aware, focused and responsive. This would explain why the stock investors who experienced more intense feelings earned higher stock returns. In another study, Marc-Andre Reinhard and Norbert Schwarz in Journal of Experimental Psychology report that individuals who experienced negative moods were better at recognizing deceptive messages than individuals who were in a positive mood. This study implies that the direction (positive or negative) of feeling that we have should match the task we are working on.

Previous research has shown that individuals in a positive mood tend to gloss over details and use approximations and rules of thumb in making decisions. Individuals experiencing negative moods tend to be more critical and analytical in a decision-making task. Traditionally, the belief about feelings has been that they are a distraction to thinking and effective decision-making. However, the research shows that feelings are, in fact, an important factor to consider when making decisions.

Trust in biology

In summary, decision-making is the process of selecting one thought, belief or course of action over another, and researchers estimate that we make 35,000 decisions every day.

In this article, we described the six-step decision-making process and examined five of the biological influences that impact this process. We described that the propensity to make risky decisions as well as our preferences for certain product characteristics are driven, in part, by our biology.

Knowing this can help us to understand and develop a higher degree of tolerance both for our own decisionmaking style as well as for others whose decision-making is more or less risky than our own.

We also discussed how acute stress can lead to improved decision-making and how chronic stress can inhibit creative decision-making. Therefore, achieving an optimum level of stress is very important for managers and professionals when making decisions. In terms of sleep, research clearly shows that sufficient amounts of sleep are necessary for comprehensive and innovative decisionmaking. Knowing this, promoting a workplace culture that fosters adequate amounts of sleep is critical.

We also discussed that for decision tasks where we have tacit knowledge and/or where the components of the decision are nondecomposable, we can literally "trust our guts." We recommend that we take a moment to pause and check our gut when we are about to make decisions such as these. Finally, we described that our feelings can have a positive impact on our decisions, and so we suggest using our feelings as additional sources of information when we make decisions.

As the late American religious leader Thomas Monson said, "Our lives will depend upon the decisions which we make, for decisions determine destiny." The goal of this article was to shed light on the underlying biological factors that influence our decision-making so that we can make more informed and effective decisions.