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

Author

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  • 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.

Suggested Citation

  • Leeat Yariv, 2002. "I'll See It When I Believe It - A Simple Model of Cognitive Consistency," Cowles Foundation Discussion Papers 1352, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:1352
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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d13/d1352.pdf
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    Cited by:

    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, Dipartimento di Economia "Marco Biagi".
    2. Markus K. Brunnermeier & Jonathan A. Parker, 2005. "Optimal Expectations," American Economic Review, American Economic Association, vol. 95(4), pages 1092-1118, September.
    3. Elena Argentesi & Helmut Lütkepohl & Massimo Motta, 2010. "Acquisition of Information and Share Prices: An Empirical Investigation of Cognitive Dissonance," German Economic Review, Verein für Socialpolitik, vol. 11, pages 381-396, August.
    4. 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.
    5. Tsao, J.Y. & Boyack, K.W. & Coltrin, M.E. & Turnley, J.G. & Gauster, W.B., 2008. "Galileo's stream: A framework for understanding knowledge production," Research Policy, Elsevier, vol. 37(2), pages 330-352, March.
    6. repec:cep:stieop:46 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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