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Emotional Markets: Competitive Arousal, Overbidding and Bubbles

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  • Brice Corgnet

    (EM - EMLyon Business School, GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure-Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Camille Cornand

  • Nobuyuki Hanaki

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.

Suggested Citation

  • Brice Corgnet & Camille Cornand & Nobuyuki Hanaki, 2025. "Emotional Markets: Competitive Arousal, Overbidding and Bubbles," Working Papers hal-04473406, HAL.
    • Handle: RePEc:hal:wpaper:hal-04473406
    Note: View the original document on HAL open archive server: https://hal.science/hal-04473406v2
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