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Taken from the BBC's Horizon: "Where's my robot?"
Leonardo picks up on the positive "Elmo is good" vibes that the guy is giving off about the Elmo toy and responds positively by looking excited and reaching towards it.
When they guy takes away Elmo and replaces it with a Cookie Monster toy and gives off negative, "Cookie Monster is bad" signals, Leonado reacts accordingly and backs away.
Leonardo hasn't seen either toy before but has been programmed to pick up the emotional vibes given off by humans and react accordingly.