The Joy of Winning and the Frustration of Losing: A Psychophysiological Analysis of Emotions in First-Price Sealed-Bid Auctions

Research on emotions suggests that auction outcomes may elicit an aversive "frustration of losing" as well as a rewarding "joy of winning" response. However, little is known about the intensity of these emotional reactions and how they relate to other factors in the auction process. In this article, we present an experiment in which subjects participated in a sequence of first-price sealed-bid auctions. The psychophysiological measures skin conductance response (SCR) and heart rate (HR) were recorded as proxies for both the intensity and the valence of emotions. Our results show that the deceleratory responses in HR when losing an auction are stronger than when winning an auction. The drop in HR itself can be interpreted as a reaction to stimuli with negative emotional valence. Moreover, we found that winning an auction induces a stronger SCR compared with losing an auction. Interestingly, this effect even holds for different value classes and different amounts of payoffs. Moreover, we show that bidders' SCR amplitude increases in the relation to the amount of money at stake. However, we cannot make a definite determination as to whether the valuation or the potential nominal payoff triggers this effect. We conclude that psychophysiological methodologies are appropriate for the measurement of rewarding, as well as immediate aversive emotions in market decision making, and even allow identifying fined-grained emotional characteristics.