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

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Author Info
Leeat Yariv
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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Paper provided by Cowles Foundation, 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;

Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
M30 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - General

Cited by:
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  1. 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". [Downloadable!]
  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. [Downloadable!]
    Other versions:
  3. Markus K. Brunnermeier & Jonathan A. Parker, 2004. "Optimal Expectations," NBER Working Papers 10707, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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