Advanced Search
MyIDEAS: Login to save this article or follow this journal

An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness

Contents:

Author Info

  • David Hirshleifer
  • Ivo Welch

Abstract

This paper examines the effect of memory loss on the continuity of behavior. We consider a player (individual or firm) who remembers previous actions but not underlying rationales. In a stable environment, relative to a full-recall scenario, memory loss increases the probability of following old policies (inertia). In a volatile environment, memory loss can decrease this probability (impulsiveness). The model provides a memory-loss explanation for some documented psychological biases, implies that inertia and organizational routines should be more important in stable environments than in volatile ones, and provides empirical implications relating memory and environmental variables to economic decisions. Copyright (c) 2002 Massachusetts Institute of Technology.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=jems&volume=11&issue=3&year=2002&part=null
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 11 (2002)
Issue (Month): 3 (09)
Pages: 379-421

as in new window
Handle: RePEc:bla:jemstr:v:11:y:2002:i:3:p:379-421

Contact details of provider:
Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

Order Information:
Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Arkes, Hal R. & Blumer, Catherine, 1985. "The psychology of sunk cost," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 35(1), pages 124-140, February.
  2. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  3. Donald C. Hambrick & Richard A. D'Aveni, 1992. "Top Team Deterioration as Part of the Downward Spiral of Large Corporate Bankruptcies," Management Science, INFORMS, INFORMS, vol. 38(10), pages 1445-1466, October.
  4. George Loewenstein, Ted O'Donoghue and Matthew Rabin., 2000. "Projection Bias in Predicting Future Utility," Economics Working Papers, University of California at Berkeley E00-284, University of California at Berkeley.
  5. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-90, September.
  6. Sendhil Mullainathan, 2002. "A Memory-Based Model Of Bounded Rationality," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 735-774, August.
  7. Marco Ottaviani & Giuseppe Moscarini & Lones Smith, 1998. "Social learning in a changing world," Economic Theory, Springer, Springer, vol. 11(3), pages 657-665.
  8. Dow, James, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 1-14, January.
  9. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 797-817, August.
  10. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1149-1187, November.
  11. Kuran, Timur, 1987. "Preference Falsification, Policy Continuity and Collective Conservatism," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(387), pages 642-65, September.
  12. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June.
  13. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  14. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1325-48, December.
  15. Rasmusen, Eric, 1992. "Managerial Conservatism and Rational Information Acquisition," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 175-201, Spring.
  16. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(437), pages 925-51, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. John Smith, 2007. "Cognitive Dissonance, Imperfect Memory and the Preference for Increasing Payments," Departmental Working Papers, Rutgers University, Department of Economics 200705, Rutgers University, Department of Economics.
  2. Sgroi, D., 2002. "Modelling Experience as Signal Accumulation," Cambridge Working Papers in Economics 0205, Faculty of Economics, University of Cambridge.
  3. Carlos Alós-Ferrer & Fei Shi, 2012. "Imitation with asymmetric memory," Economic Theory, Springer, Springer, vol. 49(1), pages 193-215, January.
  4. Ivo Welch, 2002. "Columbus' Egg: The Real Determinant of Capital Structure," NBER Working Papers 8782, National Bureau of Economic Research, Inc.
  5. John Smith, 2009. "Imperfect Memory and the Preference for Increasing Payments," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 165(4), pages 684-700, December.
  6. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9142, University Library of Munich, Germany.
  7. Anja Lambrecht & Katja Seim & Catherine Tucker, 2007. "Stuck in the Adoption Funnel: The Effect of Delays in the Adoption Process on Ultimate Adoption," Working Papers, NET Institute 07-40, NET Institute, revised Oct 2007.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:11:y:2002:i:3:p:379-421. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.