The Effect of Induced Mood on Prices in Asset Markets - Experimental Evidence

In this paper we study the effect of induced positive mood on price patterns in experimental asset markets. We conduct experimental asset markets where subjects go through a mood induction procedure prior to trade. After the subjects are induced with positive affect, they can trade an experimental asset with a known stream of dividends for a known number of periods. Compared to the control (where subjects are not induced with positive affect), we first show that the mood induction procedure was successful. Then, we show when traders induced with positive mood, prices exhibit larger positive deviations from fundamental values. Finally, we show that when subjects are induced with positive mood, they bid on less units of the share, but are willing to pay higher amounts for them. Ask prices and quantities are higher when traders are induced with positive mood