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A Behavioral Model of Conumption Patterns: The Effects of Cognitive Dissonance and Conformity

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  • Nir, A.

    (Tilburg University, Center for Economic Research)

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    Abstract

    Cognitive dissonance causes people to rationalize actions that differ from their own preferences.Conformity, on the other hand, causes people to change their behavior as a result of pressure from others.This paper investigates the consequences of preference dynamic that occur when individuals rationalize their preferences, are conformists and have a minimum consumption constraint.The main results are: (1) Individuals who have a greater tendency toward conformity will rationalize their preferences to a greater degree, (2) Individuals' optimal consumption pattern will be unstable and scatter over time, (3) Average consumption in society will increase along a cyclical path and (4) An increase in either cognitive dissonance or conformity induces greater volatility of average consumption.

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    Bibliographic Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-48.

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    Date of creation: 2004
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    Handle: RePEc:dgr:kubcen:200448

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    Web page: http://center.uvt.nl

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    Keywords: rationality; cognitive science; consumption; volatility;

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    1. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
    2. Matthew Rabin., 1991. "Cognitive Dissonance and Social Change," Economics Working Papers 91-180, University of California at Berkeley.
    3. Chatterjee, Satyajit & Ravikumar, B., 1999. "Minimum Consumption Requirements: Theoretical And Quantitative Implications For Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 3(04), pages 482-505, December.
    4. Black, Fischer & Perold, AndreF., 1992. "Theory of constant proportion portfolio insurance," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 403-426.
    5. 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.
    6. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
    7. Nagler, Matthew G., 1993. "Rather bait than switch : Deceptive advertising with bounded consumer rationality," Journal of Public Economics, Elsevier, vol. 51(3), pages 359-378, July.
    8. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
    9. Dickens, William T., 1986. "Crime and punishment again: The economic approach with a psychological twist," Journal of Public Economics, Elsevier, vol. 30(1), pages 97-107, June.
    10. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October.
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