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We report two studies into psychological factors that have been proposed to contribute to the claim of having experienced a precognitive dream. Study 1 investigated the role of selective recall in precognitive dream experiences. Participants read two diaries, one purporting to be a dream diary, and one purporting to be a diary of events in the dreamer's life. The events either confirmed or disconfirmed the reported dreams. As predicted, a significantly greater number of confirmed than disconfirmed dream-event pairs were recalled. Study 1 also investigated whether paranormal belief moderated the selective recall effect, but no relationship was found. Study 2 tested the hypothesis that paranormal beliefs may in part arise from a propensity to associate unrelated events. Participants undertook two tasks. For the 'contextual' task, participants were asked to find correspondences between randomly-paired news articles and dream reports. The 'neutral' task invited participants to produce a noun that would provide an associative connection between two unrelated nouns. As predicted, paranormal belief and precognitive dream belief were found to correlate significantly with ability to find correspondences between dreams and news event pairs. Contrary to prediction, no relationship was found between belief and performance on the neutral association task. Together, these studies illustrate the operation of mechanisms that, when present in individuals having dreams and experiencing subsequent events, would tend to lead to an increase in the number of experiences of a seeming coincidence between dreams and events that can be interpreted as precognitive.