Handbook of Behavioral Industrial Organization
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Handbook of Behavioral Industrial Organization

Edited by Victor J. Tremblay, Elizabeth Schroeder and Carol Horton Tremblay

The Handbook of Behavioral Industrial Organization integrates behavioral economics into industrial organization. Chapters cover concepts such as relative thinking, salience, shrouded attributes, cognitive dissonance, motivated reasoning, confirmation bias, overconfidence, status quo bias, social cooperation and identity. Additional chapters consider industry issues, such as sports and gambling industries, neuroeconomic studies of brands and advertising, and behavioral antitrust law. The Handbook features a wide array of methods (literature surveys, experimental and econometric research, and theoretical modelling), facilitating accessibility to a wide audience.
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Chapter 5: Cognitive dissonance, motivated reasoning, and confirmation bias: applications in industrial organization

Daniel F. Stone and Daniel H. Wood

Abstract

Three concepts from psychology – cognitive dissonance, motivated reasoning, and confirmation bias – are perhaps surprisingly closely related and have been used productively in a variety of fields in economics, more so over time. These concepts are relevant to the field of industrial organization as they help explain how consumer tastes and beliefs about product qualities are determined, change, are perceived and misperceived, and related to firm responses. The concepts have been applied in existing industrial organization research, but to a limited extent, and we speculate that future work could benefit from applying these concepts more extensively.

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