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Title:Cognitive dissonance, imperfect memory and the preference for increasing payments PDF Logo
Authors:Smith, John
Issue Date:2007
Series/Report no.:Working papers // Department of Economics, Rutgers, the State University of New Jersey 2007,05
Abstract:In this paper we propose a theory of cognitive dissonance through imperfect memory. Cognitive dissonance is the tendency of a person to engage in self justification after a decision. We offer an interpretation of the single decision cognitive dissonance experiments: an agent has an unknown cost of effort and before the decision receives a private signal of the cost of effort, which is subsequently forgotten. Following the decision, the agent makes an inference regarding the content of this signal based on the publicly available information: the action taken and the wage paid. We explore the implications of this interpretation in a setting requiring a decision of effort in two periods. A preference for increasing payments naturally emerges from our model. With the auxiliary assumption that obtaining wage income requires an unknown cost of effort and obtaining rental income requires a known, zero cost of effort, our results provide an explanation for the experimental findings of Loewenstein and Sicherman (1991). These authors find evidence of stronger preferences for increasing income from wages rather than income from rent. Our model makes the novel prediction that this preference for increasing payments will only occur when the contracts are neither very likely nor very unlikely to cover the cost of effort.
Subjects:Cognitive dissonance
increasing payments
imperfect memory
imperfect recall
self-perception theory
JEL:C73
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, Rutgers University

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