Emotion Regulation and Behavior in an Individual Decision Trading Experiment: Insights From Psychophysiology

A large number of private investors deviate from maximizing expected monetary value of a given decision. Instead of focusing on fundamental indicators, they have the tendency to be driven by experienced gains and losses, or the emotional arousal experienced as a result of these trends. Up till now, little is known about how emotion regulation (ER) strategies, such as reappraisal or suppression, dictate the extent to which emotions are experienced, and how they impact deviations from expected value (EV)-maximizing behavior. We seek to answer these questions in this article. To this end, we conducted an experiment with 4 treatments, where participants traded stocks with higher/lower valuation and lower/higher probabilities of price increase. Skin conductance responses, heart rate measures and questionnaires were used to measure the emotional arousal and ER strategies. The results show that using ER indeed influences the level of emotional arousal experienced. First, reappraisers experienced lower levels of arousal, and suppressors higher. Second, while reappraisal reinforced the impact of emotional arousal on EV-maximizing behavior, adopting suppression strategy had no similar impact. Third, reappraisal reinforced the impact of integral arousal on EV-maximizing decisions, especially after experiencing losses. This was not observed for suppressors, whether they experienced a gain or a loss. We infer that reappraisal has an observable impact on decisions, especially after losses, and could be used to train investors to improve decision-making performance. The article concludes with theoretical implications of emotion regulation on physiological arousal, and on maximizing the expected value in a stock trading context.