Addressing Emotional Dysregulation in Experimental Design

This article describes the set-up of an experimental protocol to take into account the effects of emotional adaptation following stock market decision-making. Basically, the qualitative models used to analyze the behavior of small investors in experimental finance consider three areas of analysis (a socio-demographic analysis, a socio-cultural analysis and an analysis of the psychological reality of individuals). These different areas would then influence the emotions felt, which would stimulate the development of behavioral and cognitive biases. Finally, the latter would ultimately be responsible for influencing decision-making processes. Firstly, our protocol is based on this traditional view of the different factors influencing individual investors' decision-making. Secondly, we suggest a retrospective approach as we believe that the confrontation between expectations and the results generated by decision-making have a feedback effect on the emotional patterns developed by individual investors, and on their psychological reality. Indeed, the increasing number of different emotions tends to "plunge" them into an “emotional bath” in which they can no longer regulate their emotions. This could result in abandonment versus euphoria. According to some authors, “emotional dysregulation” is the result of excessive emotional involvement. Since the stock market is an uncertain environment, where decisions must be made quickly and risks are high, emotional regulation strategies become difficult to apply. Finally, this experimental protocol, supported by qualitative methodological techniques implemented sequentially, makes it possible to analyze emotions as the experiment progresses. We believe this approach offers real added value on two levels. Firstly, even though behavioral finance questions the foundations of traditional finance (and the assumption of rationality), it most often uses quantitative measurement tools. For this purpose, the literature clearly highlights the under-representation of qualitative methodologies in this field. Secondly, the few studies supported by qualitative approaches aim at identifying cause-and-effect links between elements which, in some cases, are difficult to measure and cannot be approached in a linear process. This protocol provides a precise understanding of how emotional patterns and their changes over time might affect the decision-making processes of individual investors.