Emotions and Economic Shocks in a First-Price Auction: An Experimental Study

Abstract

We investigate experimentally whether emotions affect bidding behavior in a first price auction. To induce emotions, we confront subjects after a first auction series with a positive or negative random economic shock. We then explore the relation between emotions and bidding behavior in a second auction series. Our main results are: (i) the economic shock has a substantial impact on the experienced emotions of bidders; (ii) the emotional state systematically influences bidding behavior. Our findings show that for a good understanding of bidder behavior the emotions have to be taken into account.