Festinger's Dissonance Theory Essay
Several psychological and cognitive insights have been given a to why CB occurs. A fairly prevalent explanation, as described by Kosnik (2007) is that humans have restricted cognitive abilities particularly when it comes to information processing. According to Rabin and Schrag (1999), CB means people can interpret evidence to support their belief in whatever so phenomenon. Other explanations include people’s desire to feel confident in their decisions. An experiment by Eliaz and Schotter (2010) showed people were willing to pay for information about a decision they were planning to make, despite knowing this information would not affect the decision. All this new information did was increase their confidence in original beliefs, reflecting real-life decision-making.
The most robust explanation is based on Festinger’s Dissonance Theory. Essentially, Festinger’s (1962) theory states that the preferred state of mind is for our cognition, which involves attitudes, emotions, and beliefs, to be consistent. If this is not
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Economic relevance of Confirmation Bias
The economic relevance of CB lies primarily in its implications for Bayes rule; which underpins many important economic models. That is, under CB, “economic agents do not act as perfectly rational in the sense that they do no mimic the behaviour of a Bayesian statistician” (Elejalde, 2011). To consider the effect of CB on Bayesian models, Bruner and Potter’s (1964) experiment can be considered alongside a theoretical framework idealised by Rabin and Schrag (1999).
In Rabin and Schrag’s (1999) framework, it is assumed there are two states of the world, x ∈ {A, B}, A and B, that are mutually exclusive regarding a particular issue. A person will form beliefs over how likely each state is, as they receive information over time t ∈ {1, 2, 3, …} in the form of signals st ∈ {a, b). After receiving the signal, the person will update their belief about the relative state of the world (x = A and x = B) as per Bayes
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