Emotions and reasons in a hot versus cold experiment

Abstract

This paper investigates the interaction of emotions and reason in a sequential bargaining experiment. In particular, we employ two new one-shot sequential games of 2x2 format which are somewhat similar to the well-known trust game with the difference that the inefficient outside option of no trust could be punished by the second mover at some cost. The design has two control variables, the decision procedure (hot, in which the second mover reacts to the actual decision of the first mover, versus cold, in which the second mover has to deliver a complete strategy) and the costs of punishment (high vs. low). < br/> Our results reveal that behavior is influenced by both variables. In fact, punishment occurs only in the hot situation and only when the costs are low enough. However, there is no significant difference in second mover behavior if the first mover chooses the trust subgame, namely almost no reward. Moreover, first mover behavior seems to be rather puzzling given our observations of the second mover. Despite the higher likelihood of being punished, they chose the nontrust action of two effects: the so-called consensus effect and the so-called positive self-image effect. While the former describes the phenomenon that people tend to believe that others behave the same as they do, the latter refers to the observation that people maintain unrealistic and positive beliefs about themselves; that is, they dislike thinking of themselves as being capable of exploiting or harming others.