The Effect of Induced Mood on Prices in Experimental Asset Markets

In this paper we study the effect of induced positive mood on price patterns in experimental asset markets. Smith, Suchanek and Williams (1988) in their seminal paper documented bubbles and crashes in experimental asset markets (i.e., prices exceed fundamental value in the beginning and fall towards or below the fundamental value towards the end of the market). Since then, a number of studies have shown that the magnitude of the bubble is influenced by experience, the ability to buy on margins and sell short. We believe that price patterns will also be influenced by affect. We use call trading market rules in our experimental asset markets. As expected, our results show a higher deviation of prices from fundamental values under positive affect treatment.