Emotional Markets: Competitive Arousal, Overbidding and Bubbles

Brice Corgnet, Camille Cornand and Nobuyuki Hanaki

No 2117, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We investigate the influence of trading institutions on emotional arousal and bidding behavior through a series of behavioral and physiological experiments involving an investment task. In line with the competitive arousal hypothesis, we show that markets exacerbate the emotional arousal associated with winning bids, especially when buying an asset leads to substantial earnings. The market treatment exhibits overbidding and bubble dynamics in comparison to the baselines that use a Becker-DeGroot-Marschak mechanism. Treatment differences disappear for investors who exhibit no base rate emotional arousal. Our study shows that emotions are critical for understanding market outcomes and suggests designing new trading institutions to mitigate competitive arousal and subsequent overbidding in markets.

Keywords: Competitive arousal; trading institutions; feedback; emotions and risk (search for similar items in EconPapers)
JEL-codes: C91 C92 D91 G41 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-exp and nep-rmg
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https://www.gate.cnrs.fr/RePEc/2021/2117.pdf (application/pdf)

Related works:
Working Paper: Emotional Markets: Competitive Arousal, Overbidding and Bubbles (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:2117

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