'Just Forget it' Memory Distortion as Bounded Rationality
IEW Working Paper No. 192
25 Pages Posted: 25 Jun 2004
Date Written: June 2004
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.
Keywords: Memory, bounded rationality, learning, retention, ironic process theory, principal agency
JEL Classification: D11, D83, J2, M20, Z00
Suggested Citation: Suggested Citation