In consumer psychology, there is a concept called the Theory of Cognitive Dissonance. It applies equally to everyone on these boards who predict doomsday scenarios at the drop of a hat and those expecting 25% returns per year forever. It goes something like this:

Humans have a deep abiding need in their psyche to be consistent in our attitudes and behaviors; we want to feel in agreement and unified in thought and action. Inner harmony sounds good to everyone, and so it was Festinger’s view that when we feel a disharmony, or dissonance, within ourselves, between two factors, we strive to decrease this tension by either changing our original thought, giving strength to the opposing thought, or letting go of the behavior. All three techniques are in the name of decreasing dissonance because it is threatening to experience such a large crack in our rationale that dissonance often creates.

Say I realized that I missed out on a real estate boom in India in the last one year by thinking prices would "correct". I am feeling a post-decision dissonance, now that I’ve chosen to not buy, within myself due to the following logical inconsistency:

1. I value real estate capital growth
2. I do not own any real estate investments

I really want to work it out because otherwise I feel scattered like a "schizophrenic" as Festinger put it. Since my belief and behavior conflict, I seek to eliminate and reconcile the difference by choosing one of three paths:


1. I can devalue my belief and say, "Real estate investment is too much risk anyways. Look at what happened in Noida land issue. I was better off with FD"
2. I can emphasize a new belief that supports my decision to not buy. "Hmmm, its good I didn't buy. After seeing World Bank and Fitch negative outlook, prices will correct by 50%."
3. I can buy real estate now. "No realistic chance of any major correction. I am better off with buying now rather than risk more uncertainty in the future"

The first two choices above involve the concept called selective exposure where I expose myself only to beliefs that make my behavior seem congruent; I avoid opposing thoughts in order to decrease dissonance. You often see that on these boards when people who predict "correction" selectively post pessimistic reports while disregarding optimistic news reports. They hunt and look for and post every news report or article that agrees with their beliefs.

The third choice reaction to this inconsistency is halting the behavior and keeping my original attitude’s integrity.
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