Cognitive dissonance and the associated reduction of dissonance may change an individual's attitudes and beliefs. In this thesis, I explore the effects of dissonance reduction in a principal-agent relationship. When agents are initially imperfectly informed about their abilities, dissonance may arise when they learn their true abilities: they may experience an inconsistency between their true ability and their choices in the principal-agent relationship. In reducing dissonance, agents may shift their attitudes regarding the benefits of employment, potentially focusing on nonpecuniary benefits over wage benefits. As a result, screening contracts in which the principal hires only high ability workers may not be feasible. I discuss the efficiency implications of dissonance reduction and possible solutions to the screening problem.

Bibliography: p. 58-60