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I'll See It When I Believe It - A Simple Model of Cognitive Consistency

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  • Leeat Yariv
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    Abstract

    Psychological experiments demonstrate that people exhibit a taste for consistency. Individuals are inclined to interpret new evidence in ways that confirm their pre-existing beliefs. They also tend to change their beliefs to enhance the desirability of their past actions. I present a model that incorporates these effects into an agent's utility function and allows me to characterize when: (i) agents become under- and over-confident, (ii) agents exhibit excess stickiness in action choices, (iii) agents prefer less accurate signals, and (iv) agents are willing to pay in order to forgo signals altogether. Applications to political campaigns and investment decisions are explored.

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    File URL: http://cowles.econ.yale.edu/P/cd/d13b/d1352.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1352.

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    Length: 45 pages
    Date of creation: Feb 2002
    Date of revision:
    Handle: RePEc:cwl:cwldpp:1352

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    Related research

    Keywords: Belief utility; cognitive dissonance; confirmatory bias; overconfidence; selective exposure;

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    Cited by:
    1. Jonathan Parker & Markus K Brunnermeier, 2002. "Optimal Expectations," FMG Discussion Papers dp434, Financial Markets Group.
    2. Elena Argentese & Helmut Luetkepohl & Massimo Motta, 2006. "Acquisition of information and share prices: An empirical investigation of cognitive dissonance," Economics Working Papers ECO2006/32, European University Institute.
    3. Ashraf, Nava & Bandiera, Oriana & Lee, Scott S., 2014. "Awards unbundled: Evidence from a natural field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 100(C), pages 44-63.
    4. Riccardo Ferretti & Francesco Pattarin, 2008. "Is public information really public? The role of newspapers," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08013, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".

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