Cognitive Dissonance, Pessimism, and Behavioral Spillover Effects

Abstract (Via Iza)

This paper reports results from a unique two-stage experiment designed to examine the spillover effects of optimism and pessimism. In stage 1, we induce optimism or pessimism onto subjects by randomly assigning a high or low piece rate for performing a cognitive task. We find that participants receiving the low piece rate are significantly more pessimistic with respect to performance on this task. In stage 2 individuals participate in an ultimatum game. We find that minimum acceptable offers are significantly lower for pessimistic subjects, though this pessimism was generated in a completely unrelated environment. These results highlight the existence of important spillover effects that can be behaviorally and economically important – for example, pessimism regarding one’s initial conditions (e.g., living in poverty) may have spillover effects on one’s future labor market outcomes.

Conclusion (Via IZA)

This result can help explain asymmetries in economic outcomes, such as one’s labor market outcomes. Outside the laboratory setting, pessimism about oneself or one’s future prospects may emerge from poor initial conditions (e.g. living in poverty) and may have subsequent effects in other domains of life. For example, Oxoby (2004) and Montgomery (1994) argue that individuals with low financial endowments experience dissonance regarding their adherence to mainstream norms. As a result, individuals living in poverty may be more likely to withdraw effort from the labor market and support from their families. Indeed this character of pessimism or dissonance is inherent in the Council of Europe’s proposed policies to combat social exclusion (see Avramov, 2002, and Council of Europe, 2001). Pessimism of this sort may manifest itself in lower starting wages or lower and more infrequent wage increases and promotions, both of which may lead to an inferior wage path for pessimistic labor market participants. The inferior wage path would lead to lower relative wages and greater pessimism or lower self-esteem (see Goldsmith, et al., 1997), thereby reinforcing the cycle. As such, combating pessimism can be seen as an important aspect in reducing poverty and reducing social and economic exclusion. The implications of understanding spillover effects of optimism/pessimism may well extend to a host of other important environments, such as marital success, judgment accuracy, or accident rates (Lyubomirsky and King, 2005).

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22. September 2009 by Miguel Barbosa
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