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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," Review of Economic Studies, Oxford University Press, vol. 88(1), pages 287-333.
  • Handle: RePEc:oup:restud:v:88:y:2021:i:1:p:287-333.
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