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A Theory of Strategic Uncertainty and Cultural Diversity

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  • Willemien Kets
  • Alvaro Sandroni

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.

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  • Willemien Kets & Alvaro Sandroni, 2021. "A Theory of Strategic Uncertainty and Cultural Diversity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(1), pages 287-333.
    • Handle: RePEc:oup:restud:v:88:y:2021:i:1:p:287-333.
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    1. Roweno J. R. K. Heijmans, 2023. "Unraveling Coordination Problems," Papers 2307.08557, arXiv.org, revised Aug 2023.
    2. Akerlof, Robert & Rayo, Luis, 2020. "Narratives and the Economics of the Family," CEPR Discussion Papers 15152, C.E.P.R. Discussion Papers.
    3. Akerlof, Robert & Rayo, Luis, 2020. "Narratives and the Economics of the Family," The Warwick Economics Research Paper Series (TWERPS) 1299, University of Warwick, Department of Economics.
    4. Jin, Ming & Chen, Fanglin & Chen, Zhongfei, 2023. "Cultural barriers in China's corporate loans," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Łukasz Baszczak, 2023. "Ekonomia narracji – początki nowego nurtu," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 66-81.
    6. Kets, Willemien & Kager, Wouter & Sandroni, Alvaro, 2022. "The value of a coordination game," Journal of Economic Theory, Elsevier, vol. 201(C).
    7. Kets, Willemien, 2021. "Organizational Design: Culture and Incentives," SocArXiv 3y8t4, Center for Open Science.
    8. Akerlof, Robert & Rayo, Luis, 2020. "Narratives and the Economics of the Family," CAGE Online Working Paper Series 503, Competitive Advantage in the Global Economy (CAGE).

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