Research Report Heart Strings and Purse Strings Carryover Effects of Emotions on Economic Decisions

We examined the impact of specific emotions on the endowment effect, the tendency for selling prices to exceed buying or “choice” prices for the same object. As predicted by appraisaltendency theory, disgust induced by a prior, irrelevant situation carried over to normatively unrelated economic decisions, reducing selling and choice prices and eliminating the endowment effect. Sadness also carried over, reducing selling prices but increasing choice prices--producing a “reverse endowment effect” in which choice prices exceeded selling prices. The results demonstrate that incidental emotions can influence decisions even when real money is at stake, and that emotions of the same valence can have opposing effects on such decisions. Two decades of research document the tendency for incidental emotion to color normatively unrelated judgments and decisions (for reviews, see Forgas, 1995; Loewenstein & Lerner, 2002; Schwarz, 1990). Early research found that positive emotions trigger more optimistic assessments than negative emotions, whereas negative emotions trigger more pessimistic assessments than positive emotions, even if the source of the emotion has no relation to the target judgments (Johnson & Tversky, 1983). More recent research has demonstrated the importance of examining specific emotions in addition to global (positive-negative) feelings (Bodenhausen, Sheppard, & Kramer, 1994; DeSteno, Petty, Wegener, & Rucker, 2000). Experiments reveal that emotions not only arise from but also elicit specific appraisals (Keltner, Ellsworth, & Edwards, 1993; Lerner & Keltner, 2001; Tiedens & Linton, 2001), as predicted by appraisal-tendency theory (Lerner & Keltner, 2000). Although tailored to help the individual respond to the event that evoked the emotion, such appraisals persist beyond the eliciting situation, becoming an implicit lens for interpreting subsequent situations. For example, fear arises from and evokes appraisals of uncertainty and lack of situational control, which are two central determinants of risk judgments (Slovic, 1987), whereas anger arises from and evokes appraisals of certainty and individual control (Smith & Ellsworth, 1985). Experimental results are consistent with appraisal-tendency theory in that anger triggered in one situation evokes more optimistic risk estimates and risk-seeking choices in unrelated situations, whereas fear does the opposite (Lerner, Gonzalez, Small, & Fischhoff, 2003; Lerner & Keltner, 2001). Among the many recent studies that document carryover effects of specific emotions, none examined their impact on behavior with financial consequences. This gap is significant, for two reasons. First, including financial consequences provides a stronger test of the emotionalcarryover hypothesis. It may be that emotions have little impact when real money is at stake. Second, the field of behavioral economics (i.e., the application of psychological insights to economics) has been strongly influenced by cognitively focused research on decision making, but has been largely untouched by decision researchers' recent interest in emotions. The study presented here was intended to bridge this gap.