Impaired Judgment: The Effects of Asset Impairment Reversibility and Cognitive Dissonance on Future Investment

2014 ◽  
Vol 90 (2) ◽  
pp. 739-759 ◽  
Author(s):  
Kristina Rennekamp ◽  
Kathy K. Rupar ◽  
Nicholas Seybert
Keyword(s):  
Cognitive Dissonance ◽  
Cash Flow ◽  
Belief Revision ◽  
Investment Decisions ◽  
Psychology Research ◽  
Cognitive Dissonance Theory ◽  
Asset Impairment ◽  
Asset Impairments ◽  
Dissonance Theory

ABSTRACT This paper examines how the reversibility of the accounting effect of asset impairments affects managers' investment decisions. We conduct two experiments in which participants act as CEO of a multi-division electronics company that suffers a large asset impairment at one of the divisions. Drawing on prior psychology research involving cognitive dissonance and decision reversibility, we predict and find that managers who are responsible for the decision to record the asset impairment invest more in the impaired division when the accounting effect of the impairment is reversible than when it is irreversible. This is consistent with the idea that reversible accounting effects encourage behavioral attempts to alter the cash flow outcome, while irreversible accounting effects encourage belief revision to rationalize the cash flow outcome. Also in line with cognitive dissonance theory, we show that managers who are not responsible for the decision to impair the asset, or managers who are given the opportunity to deny responsibility for the asset impairment, do not differ in their investment in the impaired division, regardless of impairment reversibility.

Judging Reduced Price Effects on Product Trial, Repeated Purchase, and Attitudes

1977 ◽  
Vol 44 (1) ◽  
pp. 71-75
Author(s):  
Earl W. Wims
Keyword(s):  
Cognitive Dissonance ◽  
New Products ◽  
Cognitive Dissonance Theory ◽  
Product Trial ◽  
Long Run ◽  
Price Effects ◽  
Dissonance Theory ◽  
Objective Being

Price incentives have traditionally been utilized to influence consumers to purchase new produces with the long-run objective being repeated purchase. An analysis of triers of new products suggests that this strategy is questionable and further study should be undertaken. Cognitive dissonance theory may account for the behavior resulting from a change in attitude induced by various levels of incentive.

scholarly journals Cognitive Dissonance Theory

Psychology ◽  
2014 ◽  
Author(s):  
David C. Vaidis ◽  
Alexandre Bran
Keyword(s):  
Cognitive Dissonance ◽  
Human Beings ◽  
General Psychology ◽  
Social Situations ◽  
Cognitive Dissonance Theory ◽  
Historical Sources ◽  
Scientific Publications ◽  
Very Large Array ◽  
Dissonance Theory ◽  
First Time

Appearing for the first time in the mid-20th century, the term “cognitive dissonance” appears nowadays about eight hundred times in PsycINFO and the original book has been cited more than forty-five thousand times in scientific publications: that is more than twice a day for about sixty years. The theory of cognitive dissonance was molded by Leon Festinger at the beginning of the 1950s. It suggests that inconsistencies among cognitions (i.e., knowledge, opinion, or belief about the environment, oneself, or one’s behavior) generate an uncomfortable motivating feeling (i.e., the cognitive dissonance state). According to the theory, people feel uncomfortable when they experience cognitive dissonance and thus are motivated to retrieve an acceptable state. The magnitude of existing dissonance depends on the importance of the involved cognitions. Experiencing a higher level of dissonance causes pressure and motivation to reduce the dissonance. Findings from several studies show that dissonance occurs when people do not act in accordance with their attitude (e.g., writing supportive arguments in favor of a topic that they do not agree upon; performing a task they disapprove). Festinger 1957 (cited under Core Historical Sources) considers three ways to cope with cognitive dissonance: (a) changing one or several involved elements in the dissonance relationship (e.g., moving an opinion to fit a behavior), (b) adding new elements to reduce the inconsistency (e.g., adopting opinions that fit a behavior), and (c) reducing the importance of the involved elements. Early theorists in this field suggested improvement to the cognitive dissonance theory by adding restrictions for the emergence of the phenomena. Three major developments have to be considered: the commitment purpose and freedom, the consequence of the act purpose, and the self-involvement. Since the 2010s, the theory has been refined with new integrative models and methodological breakthrough. Mostly studied in human beings, several studies shift paradigms to other animals such as nonhuman primates, rats, and birds. The cognitive dissonance theory has been applied to a very large array of social situations and leads to original experimental designs. It is arguably one of the most influential theories in social psychology, general psychology, and cross-discipline sciences more generally.

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