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A behavioral model of consumption patterns : the effects of cognitive dissonance and conformity

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Author Info
Nir, A. (Tilburg University, Center for Economic Research)
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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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 48.

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

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Find related papers by JEL classification:
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation

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  1. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  5. Chatterjee, S. & Ravikumar, B., 1997. "Minimum Consumption Requirements: Theoretical and Quantitative Implications for Growth and Distribution," Working Papers 97-15, University of Iowa, Department of Economics.
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  6. 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. [Downloadable!] (restricted)
  7. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 749-75, June. [Downloadable!] (restricted)
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  8. Bernheim, B Douglas, 1994. "A Theory of Conformity," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 841-77, October. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Rabin, Matthew, 1994. "Cognitive dissonance and social change," Journal of Economic Behavior & Organization, Elsevier, vol. 23(2), pages 177-194, March. [Downloadable!] (restricted)
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