Trading institutions, emotional arousal, and overbidding

Brice Corgnet (), Camille Cornand and Nobuyuki Hanaki
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Brice Corgnet: EM - EMLyon Business School
Camille Cornand: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - UJM EPE - Université Jean Monnet (EPSCPE) - EM - EMLyon Business School - CNRS - Centre National de la Recherche Scientifique
Nobuyuki Hanaki: UOsaka - The University of Osaka

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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 market institutions exacerbate the emotional arousal associated with winning bids, especially when buying an asset leads to substantial earnings. The market treatment exhibits stronger overbidding and bubble dynamics than 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 an important mechanism for understanding market outcomes and suggests designing new trading institutions to mitigate competitive arousal and subsequent overbidding in markets.

Keywords: Competitive arousal; emotions and risk; feedback; trading institutions (search for similar items in EconPapers)
Date: 2026-09-01
New Economics Papers: this item is included in nep-exp
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Published in Journal of Economic Dynamics and Control, 2026, 190, pp.35. ⟨10.1016/j.jedc.2026.105382⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05724504

DOI: 10.1016/j.jedc.2026.105382

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