An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness
AbstractThis 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.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 11 (2002)
Issue (Month): 3 (09)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- David Hirshleifer & Ivo Welch, 2001. "An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness," Yale School of Management Working Papers ysm185, Yale School of Management, revised 01 Aug 2009.
- David Hirshleifer & Ivo Welch, 2001. "An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness," Cowles Foundation Discussion Papers 1306, Cowles Foundation for Research in Economics, Yale University.
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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