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Experiences and memories are often mismatched. While multiple studies have investigated psychological underpinnings of recall error with respect to emotional events, the neurobiological mechanisms underlying the divergence between experiences and memories remain relatively unexplored in the domain of chronic pain. Here we examined the discrepancy between experienced chronic low back pain (CBP) intensity (twice daily ratings) and remembered pain intensity (n = 48 subjects) relative to psychometric properties, hippocampus morphology, memory capabilities, and personality traits related to reward. 77% of CBP patients exaggerated remembered pain, which depended on their strongest experienced pain and their most recent mood rating. This bias persisted over nearly 1 year and was related to reward memory bias and loss aversion. Shape displacement of a specific region in the left posterior hippocampus mediated personality effects on pain memory bias, predicted pain memory bias in a validation CBP group (n = 21), and accounted for 55% of the variance of pain memory bias. In two independent groups (n = 20/group), morphology of this region was stable over time and unperturbed by the development of chronic pain. These results imply that a localized hippocampal circuit, and personality traits associated with reward processing, largely determine exaggeration of daily pain experiences in chronic pain patients.