Cognitive dissonance, motivated reasoning, and confirmation bias: applications in industrial organization

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.