Ronald Bosman

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

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.

Disruptions in large value payment systems: An experimental approach

This experimental study investigates the behaviour of banks in a large value payment system. More specifically, we look at 1) the reactions of banks to disruptions in the payment system, 2) the way in which the history of disruptions affects the behaviour of banks (path dependency) and 3) the effect of more concentration in the payment system (heterogeneous market versus a homogeneous market). The game used in this experiment is a stylized version of a model of Bech and Garrett (2006) in which each bank can choose between paying in the morning (efficient) or in the afternoon (inefficient). The results show that there is significant path dependency in terms of disruption history. Also the level of disruption influences the behaviour of the participants. Once the system has moved to the inefficient equilibrium, it does not easily move back to the efficient equilibrium. Furthermore, there is a clear leadership effect in the heterogeneous market.

Emotion at Stake—The Role of Stake Size and Emotions in a Power-to-Take Game Experiment in China with a Comparison to Europe

This paper experimentally investigates how monetary incentives and emotions influence behavior in a two-player power-to-take game (PTTG). In this game, one player can claim any part of the others endowment (take rate), and the second player can respond by destroying any part of his or her own endowment. The experiment is run in China. We further compare our findings with the behavior of two European subject pools. Our results give new insights regarding emotion regulation. Even though stake size does not appear to matter for take rates and destruction rates, it does matter for the reaction function of the responder regarding the take rate. When stakes are high, there is less destruction for low and intermediate take rates, and more destruction for high take rates, compared to relatively low stakes. Under low incentives, ‘hot’ anger-type emotions are important for destruction, while ‘cool’ contempt becomes prominent under high monetary incentives. These results suggest emotion regulation in the high-stake condition. Moreover, emotions are found to fully mediate the impact of the take rate on destruction when stakes are low, whereas they only partially do so if stakes are high. Comparing the low-stakes data for China with existing European data, we find similarities in behavior, emotions and emotion intensities, as well as the full mediation of the take rate by emotions. We find some differences related to the type of emotions that are important for destruction. Whereas anger and joy are important in both, in addition, irritation and fear play a role in China, while this holds for contempt in the EU.

Investor beliefs and relative content in the news media

We investigate the effect of the tone of news on investor stock price expectations and beliefs. In an experimental study we ask subjects to estimate a future stock price for twelve real listed companies. As additional information we provide them with historical stock prices and extracts from real newspaper articles. We propose a way to manipulate the tone of news extracts without distorting its content. Subjects in different treatment groups read news items that are written either in positive or negative tone for each stock. We find that subjects tend to predict a significantly higher (lower) return for stocks after reading positive (negative) tone news. The effect is especially pronounced for stocks with poor past performance. Subjects are more likely to be optimistic (pessimistic) about the economy and to buy (sell) stocks after reading positive (negative) than negative (positive) tone news. Our results show that the news media might affect not only how investors perceive information, but also what they do in response to it.