''Just forget it.'' Memory distortions as bounded rationality

Mind and Society 4 (1):13-25 (2005)
Abstract
Distortions in memory impose important bounds on rationality but have been largely disregarded in economics. While it is possible to learn, it is more difficult, and sometimes impossible, to unlearn. This retention effect lowers individual utility directly or via reduced productivity, and adds costs to principal-agent relationships. The engraving effect states that the more one tries to forget a piece of information the more vivid it stays in memory, leading to a paradoxical outcome. The effects are based on, and are supported by, psychological experiments, and it is shown that they are relevant in many economic situations and beyond
Keywords Memory  Bounded rationality  Learning  Retention  Ironic process theory  Principal–agency theory
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