AEA Papers and Proceedings, Vol. 109, 2019

Emotional Tagging and Belief Formation: The Long-Lasting Effects of Experiencing Communism

Growing evidence in macrofinance suggests long-lasting effects of personally experienced outcomes on beliefs. To understand the underlying mechanism we turn to the neurological foundations of memory formation. We propose that emotional tagging plays a crucial role in assigning weights in the belief formation process. We use exposure to communism as well as variation in its emotional tagging to predict long-run beliefs. We show that living under communism has long-term effects on beliefs about its benefits. In addition, positive and negative emotional tags strongly affect the (pro- or anti-communist) direction of beliefs, providing anchors to memory that seem hard to reverse.