May 29, 2011

Cognitive dissonance and economic development

The inability or difficulty of learning from mistakes is at the core of the differences of peace and prosperity across countries. Cognitive dissonance can manifest itself as distorting reality to adapt it to a certain predetermined set of personal believes. One can also distort reality to justify actions or inactions. 

One can find cognitive dissonance in certain attitudes or phenomena that thwart prosperity:

  • Justify corrupt actions (giving or accepting a bribe),
  • justify crime and violence,
  • justify the avoidance of paying taxes, 
  • justify not stoping on a red light.

The hard questions are:
  • What is the origin of cognitive dissonance?
  • Why some individuals or societies seem to have higher levels of cognitive dissonance than others? Or do they?
  • Are there policy implications from a theory of economic development that is based on cognitive dissonance?
  • What can economists learn from physiologists to better understand the effect of cognitive dissonance and economic development? 
Lao Tzu gets at the core of these ideas:
A great nation is like a great man:
When he makes a mistake, he realizes it.
Having realized it, he admits it.
Having admitted it, he corrects it.
He considers those who point out his faults
as his most benevolent teachers (source).

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