Neurophysiological correlates of memory illusion in both encoding and retrieval phases

False recognition of a critical lure at retrieval in the Deese–Roediger–McDermott (DRM) paradigm depends on different processing of its corresponding associates in the encoding phase. The current study recorded ERPs in both the encoding and retrieval phases to investigate the neural correlates of differential processing of true and false memories, and the roles of encoding and retrieval in eliciting memory illusion. The ERPs recorded at the study phase were characterized by a smaller N170 component and a larger amplitude late positive component (LPC) for associates that elicited later memory illusion than those that did not elicit later memory illusion. These ERP results suggest that increased active semantic associative processing or a gist representation was established for those items that elicited later memory illusion. This interpretation was supported by the serial-position analysis of the ERPs at encoding. Three ERP components were identified at retrieval. The equal early ERP old/new effects for true and false recognition reflected similar semantic priming. The parietal ERP old/new effect was greater for true than for false recognition, reflecting the recollection processes. A late slow negativity ERP distributed at the parietal and right frontal electrode sites differentiated between true and false recognition. The ERP results confirmed that both encoding and retrieval processes are involved in eliciting false memory. The parietal and frontal distributions of LPC at encoding and the late negativity at retrieval may imply a common neural mechanism in monitoring memory encoding and retrieval.