Economists have traditionally neglected the role of emotions in economic behaviour. But new
experimental research by Ronald Bosman and Frans van Winden, published in the latest issue
of the Economic Journal, shows that emotions have an important and systematic influence on
economic decision-making, often leading to 'extreme' choices. For example, people may destroy
what they produce rather than hand a significant proportion of it over to someone else - a
phenomenon that Bosman and van Winden label 'emotional hazard' because of its damage to the
good of society as a whole.
To examine how emotions affect economic behaviour, the researchers designed an experimental
'game' in which one player, the 'take authority' - for example, the government -has the 'power-totake'
part of what another player, the 'responder' - for example, a taxpayer - produces.
The game consists of two stages. First, the take authority can claim any part of the income of the
responder. Second, the responder can destroy his or her own income. The transfer of money from
the responder to the take authority is based on the income of the responder that is left after the
second stage. So responders can punish greedy take authorities by destroying their own earned
income but at a cost to both themselves and society - the cost of scarce resources being destroyed.
Bosman and van Winden analysed how the game was played by a group of 78 undergraduate
students divided randomly into take authorities and responders. They focused particularly on how
emotions influence responders' behaviour, showing that:
(1) a higher take rate increases the intensity of negative emotions, such as irritation, contempt and
envy, and decreases the intensity of positive emotions like happiness and joy;
(2) negative emotions drive destruction;
(3) at moments of high emotional intensity, responders typically destroy everything;
(4) the responder's expectations regarding the claim of the take authority affect the probability of
destroying own income.
The game captures important aspects of taxation, monopoly pricing and relationships between
'principals', such as employers, and 'agents', such as employees, who act on their behalf. In the
area of taxation, for example, an owner of a production factor could diminish the supply of this
factor if he or she feels that the tax on the returns to this factor is outrageous.
The results suggest that when emotions influence behaviour, the impact can be quite substantial
because subjects make rather 'extreme' choices. Even if the number of decision-makers whose
behaviour is influenced by emotions is not very large, the effect on aggregate outcomes can be
quite substantial because of these extreme choices.
Notes for Editors: 'Emotional Hazard in a Power-to-take Experiment', by Ronald Bosman and
Frans van Winden is published in the January 2002 issue of the Economic Journal. The authors
are at the University of Amsterdam.
For Further Information: contact RES Media Consultant Romesh Vaitilingam on 0117-983-
9770 or 07768-661095 (email: romesh@compuserve.com); Ronald Bosman via email:
bosman@fee.uva.nl; or Frans van Winden via email: fvwinden@fee.uva.nl.