There has been recent interest on the impact of emotional expressions of computers on people's decision making. However, despite a growing body of empirical work, the mechanism underlying such effects is still not clearly understood. To address this issue the paper explores two kinds of processes studied by emotion theorists in human-human interaction: inferential processes, whereby people retrieve information from emotion expressions about other's beliefs, desires, and intentions; affective processes, whereby emotion expressions evoke emotions in others, which then influence their decisions. To tease apart these two processes as they occur in human-computer interaction, we looked at physiological measures (electrodermal activity and heart rate deceleration). We present two experiments where participants engaged in social dilemmas with embodied agents that expressed emotion. Our results show, first, that people's decisions were influenced by affective and cognitive processes and, according to the prevailing process, people behaved differently and formed contrasting subjective ratings of the agents; second we show that an individual trait known as electrodermal lability, which measures people's physiological sensitivity, predicted the extent to which affective or inferential processes dominated the interaction. We discuss implications for the design of embodied agents and decision making systems that use emotion expression to enhance interaction between humans and computers. (C) 2014 Elsevier Ltd. All rights reserved.