NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Associative Memory and Belief Formation

Benjamin Enke, Frederik Schwerter, Florian Zimmermann

NBER Working Paper No. 26664
Issued in January 2020
NBER Program(s):Political Economy Program

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.

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Document Object Identifier (DOI): 10.3386/w26664

 
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