International Bachelor Economics and Business Economics (IBEB) - A review of cognitive dissonance in economics

Sep 4, 2026

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Cognitive dissonance, originating from Festinger’s 1957 work on cognitive consistency, is analyzed as a pervasive but often overlooked phenomenon in economics. The thesis argues that the theory’s complexity and ongoing extensions make its application less intuitive compared with more widely adopted behavioural frameworks such as prospect theory. It therefore synthesizes the most relevant mechanisms and factors, presenting cognitive dissonance in an accessible way for a wider audience and clarifying its economic and societal implications.

LanguageEnglish

CategoryPaper Templates

FormatDOC

Pages28

Reading Time10 min

AccessFree to download

Introduction

Defining cognitive dissonance

The origin of cognitive dissonance

Modelling cognitive dissonance

Economic extension

Discussion and conclusion

Erasmus University Rotterdam Erasmus School of Economics Bachelor Thesis: International Bachelor Economics and Business Economics (IBEB) A review of cognitive dissonance in economics 2019 Gianni Croes 424234 Dr. Georg Granic Jan Stoop 17 July 2019 Abstract Cognitive dissonance, since Festinger (1957) compared the human necessity to achieve cognitive consistency to that of eating, has developed into a phenomenon that is both ubiquitous and largely ignored by the business community despite continuous efforts of cognitive dissonance theorists to demonstrate its importance. While other behavioural theories like prospect theory, developed by Kahneman and Tyversky (1979) are much more widely accepted, the inherent complexity of cognitive dissonance paired with continuous extensions of the theory make its applicability less intuitive. Precisely for this reason, I have decided to highlight the most relevant factors of cognitive dissonance in the field of economics and expressed them in such a way to increase its accessibility to a wider audience. Acknowledgements – First I would like to thank Raina Georgieva for her continuous support as well as her critical assessment of my writing, motivating me to do better. Also, I would like to thank Mariëlle van der Leeuw for proofreading my work, and Laura Croes & Anthony Croes for their ongoing motivation. Last but not least, I would like to thank Dr. Georg Granic for setting me on the path of cognitive dissonance and challenging me to commit myself to this spectacular phenomenon. Table of Contents Introduction 5 Defining cognitive dissonance 5 The origin of cognitive dissonance 11 Modelling cognitive dissonance 15 Economic extension 18 Discussion and conclusion 22 Introduction Cognitive dissonance is a subject of high esteem and has been heavily deliberated on in thousands of papers since the theory was first developed by Festinger (1957). It is a classic example of a psychological phenomenon that catches the eye of the scientific community and is adopted in many different fields of social science such as culture (Lahire, 2008), communication (Aronson et al., 1963) and economics (Akerlof, & Dickens, 1982). This paper focusses on the economic application of cognitive dissonance and its societal implications. In economics, cognitive dissonance plays an essential role both in the decision-making process and the evaluation of our choices. The presence of a desire for cognitive consistency is felt in every field economists affiliate themselves with. In welfare economics, cognitive dissonance can help policy makers understand why people save too little for retirement, and additionally, it provides explanations on why firms tend to continue investing in failing projects and why monetary incentives are not always a government’s best alternative to encourage altruistic behaviour. To understand the importance of the implications of dissonance theory the paper is divided in five parts. Section I conveys a basic understanding of the concept of cognitive dissonance and some of its key mechanisms. Section II traces dissonance back to it’s origins by asking what exactually causes the cognition to experience dissonance. Section III assesses various aspects of models of cognitive dissonance required to calculate both individual utility maximisation and social equilibria. Section IV demonstrates the wide applicability of cognitive dissonance in economics. Finally, section V consists of a number of considerations when dealing with cognitive dissonance and includes an outlook of the potential use of cognitive dissonance in the future. Through this, I aim to showcase that cognitive dissonance theory is both economically valid and relevant. I. Defining cognitive dissonance To understand why cognitive dissonance is such a pressing matter in economics it is important to understand the different facets of the theory. A logical start is to zoom in on the terms “cognitive” and “dissonance” separately. Festing

FAQs

What is cognitive dissonance and how is it defined in the thesis?

The thesis presents cognitive dissonance as a lack of harmony within the mind, arising when expectations differ from experience. It also emphasizes that individuals are driven to reduce the discomfort it creates.

How does cognitive dissonance originate according to the thesis?

It traces dissonance back to its roots by examining what causes cognition to experience dissonance when real events diverge from expected outcomes.

How is cognitive dissonance applied to economics in this work?

The thesis explains its role in decision-making and evaluation of choices, including implications for welfare policy and firms’ investment behaviour, and outlines models connecting individual utility and social equilibria.

Sep 4, 2026

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