the Global Financial Crisis and the Discipline of Economics by Adam Kessler
Psychology has become a prominent field in the modern world, with psychology knowledge being applied in so many sectors and spheres of life. Today, application of psychology knowledge in not only confined to hospitals but is also applied in businesses, education institutions, law enforcement agencies, economics, and reform institutions among many other areas. Kessler (2010) in his article Cognitive Dissonance, the Global Financial Crisis and the Discipline of Economics has applied the psychological concept of cognitive dissonance in the field of finance and economics. His application of this concept has been effective in assisting the readers to understand why leaders rationalized bad financial decisions and remain convinced of their actions. This paper will critically analyze this article by Kessler.
Cognitive dissonance is a psychological concept that seeks to explain how human minds rationalize inconsistence cognition or simply how human mind justify irrational behaviors (Grohol, 2008). This theory was developed by Leon Festinger in 1954. According to Festinger, when a person experiences two cognitions which are in conflict to each other, he suffers from a state of discomfort which he referred to as cognitive dissonance. One of these cognitions is usually a personal belief and the other is usually an action or decision by an individual. In order to reduce this state of discomfort the mind attempt to reduce the inconsistency between the two cognitions. This can be achieved in three ways; (1) Changing one or both cognitions (2) reducing the significance of one or both cognitions and (3) adding a new cognition. Thus according to the theory, when persons perform actions that are contrary to their beliefs, they will tend to change their belief or the significance of their actions in order to avoid the feeling of dissonance.
In his article, Kessler (2010) expresses concerns about the response of some policy makers during the financial and economic crisis experienced in the country towards the end of the past decade. Kessler has named these economists; Believers in Laissez faire (BLF). BLF are staunch believers in capitalistic and free market economy ideals. According to Kessler (2010), it is this capitalistic ideology that plunged the country into the financial crisis. However, despite this fact being so clear among many economists, BLF still deny that the ideology they believe in are the prime cause of the crisis. Kessler argues that, the reaction by the BLF cannot be explained in any other way but through the concept of cognitive dissonance.
Cognitive dissonance is making the BLF cling to their belief despite the fact that these ideals have led to the worst financial crisis since the great depression. When the BLF were asked what could have been the causes of the crises, they…
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References
Grohol J (2008). Fighting Cognitive Dissonance & the Lies We Tell Ourselves. April 11, 2011. Avaialbe at http://psychcentral.com/blog/archives/2008/10/19/fighting-cognitive-dissonance-the-lies-we-tell-ourselves/
Harmon E. and Harmon C. (2007). Cognitive Dissonance Theory after 50 Years of Development. Zeitschrift Socialpyschology Journal, 38 (1), 7-16
Kessler A. (2010). Cognitive Dissonance, the Global Financial Crisis and the Discipline of Economics. Real World Economics Reviews: 54. Available at http://www.paecon.net/PAEReview/issue54/Kessler54.pdf
Knobloch S & Meng J (2009). Looking the Other Way: Selective Exposure to Attitude- Consistent and Counter-attitudinal Political Information. Journal of Communication Research, 36 (3), 426-448
