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Stopping the Next Crisis — With a Bracelet

You're just about to make that big trade, you're sure it's going to win big, your heart is pumping and everything is saying "buy." But then the red lights start flashing — from your bracelet.

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Source: Philips

Analysts say that many risky trades could be avoided if only traders were not letting their emotions get the better of them, so Royal Philips Electronics and ABN Amro have teamed up to find a solution. Their answer is a flashing bracelet and natty-looking bowl that detects emotion.

The "Rationalizer" consists of an "EmoBracelet" that measures the "arousal component of the user’s emotion through a galvanic skin response sensor," and an "EmoBowl."

The higher the trader's arousal level, the more intense the lights on the bracelet and bowl become. When they get really worked up, the color shifts all the way from a yellow to a deep, warning red.

When the red lights flash, it could be time to take a walk, or at least think twice before making that trade, the companies said. Whether a big flashing bracelet could add to the tension or not is yet to be seen, however.

Philips and ABN Amro started work on the system before the collapse of Lehman Brothers and is aiming it at "serious home investors."

"Research shows that home investors do not act purely rationally. Their behavior is influenced by emotions, most notably fear and greed, which can compromise their ability to take an objective, factual stance," the companies said in a statement.

Experts are divided on whether emotions play a good or bad role in trading.

"It's an interesting idea, but I don't think it's going to be very useful," Louis Gagnon, a professor of finance at Queen's University, told the Financial Post.

"Emotion is central to the marketplace," he added.