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Early Theories:

The investigation of memory by Ebbinghaus circa 1885 (in a prime example of the case study) revealed that memory for items retained over a period of sleep appeared to be better than that of items retained over a period of wakefulness. Open now the floodgates of research. Jenkins and Dallenbach (1924) subsequently provided the world with some of the first widely acknowledged evidence that sleep and memory shared more than an 'e'. This effect can be distinguished from the effect of sleep deprivation on memory, where the focus is often on microsleeps, and arousal factors as causal agents of memory effects.

Consolidation Theory:
Memories remain in a somewhat fragile or labile state until a period of consolidation occurs which leads to storage of a more permanent form. Sleep was presumed to be the time during which this consolidation takes place. Hence, the consolidation perspective proposes that sleep is a period of reduced forgetting (for materials learned before, then recalled after sleep), due to this consolidation process.

Decay Theory:
Metabolic processes are noticeably (though not universally according to more current findings) supressed during sleep. If the rate of forgetting is presumed to be a process tied to metabolic rate, then it can be assumed that memories will decay at a slower rate during sleep.

Interference Theory:
Learning (and in some cases recalling) materials is a major contributing factor to the failure to recall (forgetting) other materials. This is the cornerstone of interference theory. Since during sleep, the influx of new experiences, and hence memories, is markedly reduced, Interference Theory proposes that sleep is a period of reduced forgetting.

Contemporary Theories

The importance of REM:
Many studies on animals have shown that rapid eye movement sleep appears to be the aspect of sleep during which memory consolidation occurs. Rats, pigeons, cats, primates, dolphins, dogs, rabbits; all have had experiences of the cyberpunk kind (electrodes jacked into brain) for the cause that is sleep research. Selective sleep deprivation studies have shown notable effects on memory for REM sleep in particular, although sleep deprivation in general is often associated with memory effects.

Fortunately (some would say unfortunately) ethical restraints do not permit the same degree of, shall we say, rigour, when human subjects are involved. Thus far, REM sleep has been weakly associated with consolidation effects in humans; some studies have found increases in REM sleep associated with intense periods of learning, while others have found no effect. Results from studies of selective deprivation have been mixed.

The importance of SWS: Slow wave sleep is so named because of the long, slow EEG waves recorded from people experiencing this 'type' of sleep. Studies on humans for the most part have suggested that SWS may be involved in the consolidation period. The SWS hypothesis has few current adherents, as a number of confounding influences have been identified in the studies supporting it. Some have proposed an alternate variation, where SWS is presumed to reduce the rate of memory decay, not enhance consolidation; different mechanism, same predicted outcome.

Problems: There are major confoundings which constantly plague studies of sleep and memory; one being the time of day effect. People are predisposed to sleeping at night, so any manipulations/investigations of sleep carry a time of day effect baggage if you will, making it hard to determine the actual cause of any results observed. As an example, if we have people learn a list of words, then sleep for only the first half of the night (predominantly SWS), as opposed to waking them up in the middle of the night and having them retain the list across the second half of the night (much more REM sleep), we should be determining whether REM or SWS reduces forgetting. However, we have also added a time of day effect, as well as a prior sleep effect, for the REM group, who were already asleep before they learned the list. This is pretty much unavoidable, since you need to progress through the SWS period to then experience much REM.

The Future?

Connectionist or neural network approaches to memory have played with sleep as a period of network tuning, or maintenance (although sleep as memory maintenance is a surprisingly old concept). Currently, such theories rest on the presumption that sleep does actually have an effect on memory, which is by no means a foregone conclusion.

Sleep effects on memory, when investigating humans, are fickle at best, and downright Yeti elusive at worst. We would know a great deal more about sleep and memory in humans if you could just buy babies for the purposes of research. I'm also very glad that you can't do this.

The Myths

Learning During Sleep:
You learn very little during sleep apart from that which you dream, and of that, most people remember little beyond the dreams that occur very close to waking. The problem is one of attention, and contextual cues. If you put a tape recorder under your pillow, with tomorrow's exam answers playing while you sleep, you will remember precisely bugger all of what you 'hear' while you sleep. You do hear it, but it undergoes little processing, is associated with next to nothing, and has no cues in the waking context that aid its retrieval. People rarely recall words used to actually wake them up (an experimental finding), let alone words said when they were asleep 4 hours ago.

Advice

If you are going to cram for exams, you will probably lose a great deal of sleep doing so. That is more a sleep deprivation issue, and the effects relate to reduced arousal levels. In any case, if you know nothing the night before the exam, only an act of god is going to help you out, so stay the hell up and learn stuff.

Part of my own research has however revealed that there may be a relationship between sleep and interference effects on memory. Very basically, if you are losing sleep like a sleep sieve (a bad simile, if at all), and also cramming for multiple exams, you may be increasing the strength of intereference effects on memory. The seperate 'subject spaces' if you will, are more likely to interfere, hence reduce your ability to recall any particular one, when you add sleep deprivation to the picture. Try to separate the content areas (subjects), so that each is in its own time block, seperated by a period of sleep, and your recall should be better. Naturally, as with most effects in psychological research, these effects are fairly weak, but they may provide that extra 2 % that provides happiness through an absence of failure.

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