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| Author: | Hirshleifer, D. Welch, I. |
| Title: | An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness |
| Journal: | Journal of Economics & Management Strategy
2002 : FALL, VOL. 11:3, p. 379-422 |
| Index terms: | CHANGE ECONOMICS MODELS |
| Language: | eng |
| Abstract: | This paper examines the effect of memory loss on the continuity of behavior. The authors consider a player (individual or firm) who remembers previous actions but not underlying rationales. In a stable environment, relative to a full-recall scenario, memory loss increases the probability of following old policies (inertia). In a volatile environment, memory loss can decrease this probability (impulsiveness). The model provides a memory-loss explanation for some documented psychological biases, implies that inertia and organiza- tional routines should be more important in stable environments than in volatile ones, and provides empirical implications relating memory and environmental variables to economic decisions. |
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