Rational actors or rational fools: Implications of the effects heuristic for behavioral economics

This paper describes two fundamental modes of thinking. The experiential mode, is intuitive, automatic, natural, and based upon images to which positive and negative affective feelings have been attached through learning and experience. The other mode is analytic, deliberative, and reason based. I describe recent empirical research illuminating "the affect heuristic" wherein people rapidly consult their affective feelings, when making judgments and decisions. This heuristic enables us to be rational actors in many situations. It works beautifully when experience enables us to anticipate accurately how we will like or dislike the consequences of our decisions. However, it fails miserably when the consequences turn out to be much different than we anticipated. In the latter circumstances, the rational actor may well become the rational fool.