Selective Memory and Beliefs

Abstract
A large body of laboratory and field evidence documents that beliefs exhibit several biases and that these biases help explain important economic phenomena. But where do beliefs come from? Is there a way to unify some of these biases toward a more general theory of belief formation?  I will present a model of beliefs based on the psychology of human memory and show that it can shed light on several well-known biases. I will then apply the model to i) belief formation about novel economic risks, and ii) household inflation expectations. Empirical tests show that selective memory throws new light on these domains, in particular on the workings of priming and experience effects, based on established regularities of selective recall.

The presentation will be based on three recent papers:

Memory and Probability
Imagining the Future: Memory, Simulation and Beliefs
How Inflation Expectations Dis-Anchor: The Role of Selective Memory Cues