Associative Memory and Belief Formation

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.

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