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Associative Memory and Belief Formation

Author

Listed:
  • Benjamin Enke
  • Frederik Schwerter
  • Florian Zimmermann

Abstract

Information is often embedded in memorable contexts, which may cue the asymmetric recall of similar past news through associative memory. We design a theory-driven experiment, in which participants observe signals about hypothetical companies. Here, identical signal realizations are communicated with identical contexts: stories and images. Because participants asymmetrically remember those past signals that get cued by the current context, beliefs systematically overreact. This overreaction depends in predictable ways on the signal history; the correlation between signals and contexts; and the scope for forgetting and associative memory. We quantify these results by structurally estimating a model of associative recall.

Suggested Citation

  • Benjamin Enke & Frederik Schwerter & Florian Zimmermann, 2020. "Associative Memory and Belief Formation," NBER Working Papers 26664, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26664
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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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