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We use skin conductance responses and self-reported hedonic valence to study the emotional basis of cooperation and punishment in a social dilemma. We argue that the availability of sanctions sets in motion a �virtuous emotional circle� that accompanies cooperation. Emotional reaction to free riding leads cooperators to apply sanctions. In response, and in addition to the monetary consequences of receiving sanctions, the negative emotions experienced by the free-riders when punished lead them to increase their subsequent level of cooperation. The outcome is an increased level of cooperation that becomes a new norm. Therefore, emotions sustain both the use of altruistic punishment and cooperation.
