I’ll See It When I Believe It: A Simple Model of Cognitive Consistency

Many observations from psychology, political science, and organizational behavior indicate that people exhibit a taste for consistency. Individuals are inclined to interpret new evidence in ways that confirm their pre-existing beliefs. They also tend to change their beliefs to enhance the desirability of their past actions. The current paper explores the implications of a simple model incorporating these effects into an agent’s utility function. The model allows a characterization of when: 1. agents become under- and over-confident, 2. agents prefer less accurate signals, i.e., they are willing to pay in order to forgo information, and 3. agents exhibit excess stickiness or excess volatility in action choices.