The mood of a firm

Mood is information. A good mood signals a desire to cooperate; a bad mood warns of a determination to oppose. Firms may communicate by mood. The paper makes three points about the mood of a firm. First, mood can change. A change in mood affects everyone in the market. Second, there exists a strong tendency for a firm frustrated by poor communication to have bad mood. Bad mood amplifies behavioral responses. Third, the attendant risks of bubbles and panics are a concern about policies that encourage firms to communicate by mood.

Research highlights▶ Mood is a way of expressing one's intent in social interactions. ▶ Mood is changeable and for that reason may amplify a firm's reaction. ▶ Mood tends to be infectious. ▶ Policies that promote the use of mood contribute to speculative bubbles and herd behavior.