Memory, Beliefs, and Economic Decisions

ABSTRACT:

This project builds on the psychology of memory to study how selective retrieval affects economic decisions by shaping beliefs and preferences. The general approach is one in which a person’s past experiences (both domain relevant and domain irrelevant) determine her “core” beliefs and preferences, but changing cues in the environment ignite selective retrieval of specific pieces of information, causing instability in beliefs and preferences. In this way, selective memory acts as a source of framing effects. One project studies belief formation, which is based on sampling of information shaped by similarity to cues (which include the hypotheses being assessed and irrelevant context) and by interference. A second project applies this approach to preferences, studying choice under risk (whereby people selectively retrieve from memory and simulate potential lottery outcomes) and intertemporal choice (whereby people use memory to simulate future rewards). A third project will apply these ideas to the field. Domains of interest are: i) survey measurement of how past domain relevant as well as domain irrelevant experiences shape the perception of new risks i) socio-economic identity and its effect on political opinions, ii) similarity in financial markets, beliefs and asset prices, iv) advertising, and v) instability of fairness norms.

Articles on Bocconi Knowledge: 

• Making Sense of How People Decide