Source: William Brady & Jay Van Bavel—New York University

Psychologists have long known that people behave differently in good moods versus bad moods, and this general principle extends to consumer behavior. Economists, as well, have come to appreciate that an individual’s financial decisions are not solely the result of extensive cost-benefit calculations; other factors like emotion are at play. Further, incidental emotions affect the behavior of buyers and sellers even though they are unrelated to the transaction at hand. While earlier research focused on the impact of global feelings (positive-negative), more recent research examines more specific emotions (e.g., anger and fear). In consumer settings, research shows that anger triggers greater risk-seeking behavior among buyers and sellers and that fear triggers the opposite, i.e., conservative behavior.  

The following experiment tests how two specific negative emotions—disgust and sadness—influence people’s financial valuation of objects.¹ The experiment examines the relationships between induced emotional states (disgust and sadness) and the endowment effect. Inherent in this experiment is a common technique for inducing specific emotions in a laboratory setting. Once the emotions are created, they can then be implemented in a number of experimental conditions.