Working Paper: NBER ID: w26664
Authors: Benjamin Enke; Frederik Schwerter; Florian Zimmermann
Abstract: 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.
Keywords: associative memory; belief formation; experimental economics; memory biases
JEL Codes: D03
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| associative memory (C45) | belief formation (D83) |
| second-period signal (C69) | second-period beliefs (D80) |
| number of first-period signals matching second-period signal (C32) | overreaction (D91) |
| perfect memory (treatment 'reminder') (D91) | overreaction (D91) |
| associative recall eliminated (treatment 'no cue') (C90) | beliefs underreact (D91) |
| imperfect memory (D84) | observed overreaction (G41) |