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?Just Forget It?: Memory Distortion as Bounded Rationality

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  • Bruno S. Frey

Abstract

Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, and adds costs to principal-agent relationships. The imprinting effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond.

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  • Bruno S. Frey, 2004. "?Just Forget It?: Memory Distortion as Bounded Rationality," CREMA Working Paper Series 2005-01, Center for Research in Economics, Management and the Arts (CREMA).
    • Handle: RePEc:cra:wpaper:2005-01
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    Cited by:

    1. Brocas, Isabelle & Carrillo, Juan D., 2016. "A neuroeconomic theory of memory retrieval," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 198-205.
    2. Yilmaz Kocer, 2010. "Endogenous Learning with Bounded Memory," Working Papers 1290, Princeton University, Department of Economics, Econometric Research Program..
    3. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2007. "Calculating Tragedy: Assessing The Costs Of Terrorism," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 1-24, February.

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    More about this item

    Keywords

    Memory; bounded rationality; learning; retention; ironic process theory; principalagency theory;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General
    • Z00 - Other Special Topics - - General - - - General

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