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Cognitive dissonance and the overtaking anomaly: Psychology in the principal-agent relationship

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  • Smith, John

Abstract

We propose that the concept of cognitive dissonance contributes to the explanation of the regularity that wages grow faster than productivity. Cognitive dissonance is the tendency of a person to engage in self-justification after a decision. We show that a consequence of this tendency is that agents prefer increasing sequences of surplus over their career. This is achieved by paying wages less than productivity early in the career and more than productivity later. We refer to this as the overtaking anomaly. We distinguish the cognitive dissonance explanation from other explanations of the overtaking anomaly by identifying their divergent implications.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

Volume (Year): 38 (2009)
Issue (Month): 4 (August)
Pages: 684-690

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Handle: RePEc:eee:soceco:v:38:y:2009:i:4:p:684-690

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Web page: http://www.elsevier.com/locate/inca/620175

Related research

Keywords: Increasing wages Cognitive dissonance Overtaking anomaly Behavioral economics;

References

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Cited by:
  1. John Smith, 2007. "Cognitive Dissonance, Imperfect Memory and the Preference for Increasing Payments," Departmental Working Papers 200705, Rutgers University, Department of Economics.
  2. Sean Duffy & John Smith, 2013. "Preference for increasing wages: How do people value various streams of income?," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 8(1), pages 74-90, January.
  3. Larry Epstein & Igor Kopylov, 2006. "Cognitive Dissonance and Choice," RCER Working Papers 525, University of Rochester - Center for Economic Research (RCER).

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