A Theory of Strategic Uncertainty and Cultural Diversity

Willemien Kets*, Alvaro Sandroni

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We identify a new mechanism through which cultural diversity affects economic outcomes, based on a model of culture as shared cognition. Under this view, cultural diversity matters because it increases strategic uncertainty. The model can help better understand a variety of disparate evidence, including why homogeneous societies can be more conformist, why diverse societies may get stuck in a low-trust trap, why companies with a strong culture may fail to adopt superior work practices, and why autocratic rulers in diverse societies may overinvest in state capacity.

Original languageEnglish (US)
Pages (from-to)287-333
Number of pages47
JournalReview of Economic Studies
Volume88
Issue number1
DOIs
StatePublished - Jan 1 2021

Keywords

  • C72
  • Culture
  • D01
  • D02
  • D80
  • D90
  • diversity
  • games with strategic complementarities
  • strategic uncertainty
  • theory of mind
  • Z10

ASJC Scopus subject areas

  • Economics and Econometrics

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