22 believers and 20 skeptics of extrasensory perception (ESP) participated in a telepathy experiment. Subjects were asked to judge the covariation between transmitted symbols and the corresponding feedback given by a receiver. Believers overestimated the number of successful transmissions ('hits'). Skeptics were characterized by accurate hit judgments. For believers, positive correlations between hit-responses, their heart rates, and their experienced arousal were found. In addition, subjective arousal was positively associated with the hit estimates given at the end of the experiment. This response pattern was absent in the group of skeptics. It is concluded that covariation bias as a psychophysiological concept plays an important role in the maintenance of paranormal belief.