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Of pride and prejudice: agent learning under sticky and persistent stereotype

Author

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  • Georg D. Blind

    (University of Zurich)

  • Stefania Lottanti von Mandach

    (University of Zurich)

Abstract

Stereotypes matter for economic interaction if counterparty utility is informed by factors other than price. Stereotyped agents may engage in efforts to counter stereotype by adapting to in-group standards. We present a model informing the optimal extent of these efforts depending on an agent’s (a) share of total transactions between out- and in-group agents; and (b) share of repeated transaction pairings with in-group counterparties. Low values of (a) suppress the effect of adaptation efforts on the stereotype itself (persistence). In turn, low values of (b) mean that out-group agents cannot dissociate from stereotype (stickiness). Significantly, the model implies that the optimum level of effort may require adaptation beyond in-group standards, and that such over-adaptation attains maximum likelihood in cases where stereotype is sticky and persistent at the same time. We test our model with data on private equity buyout investments conducted in Japan between 1998 and 2015 by domestic Japanese and Anglo-Saxon funds. We document that the latter not only adapt, but eventually over-adapt. In addition, we show that their efforts are effective in reducing a premium initially asked by domestic counterparties.

Suggested Citation

  • Georg D. Blind & Stefania Lottanti von Mandach, 2021. "Of pride and prejudice: agent learning under sticky and persistent stereotype," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(2), pages 381-410, April.
  • Handle: RePEc:spr:jeicoo:v:16:y:2021:i:2:d:10.1007_s11403-020-00307-0
    DOI: 10.1007/s11403-020-00307-0
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    More about this item

    Keywords

    Heterogeneous agents; Reputation building; Stereotypes; Strategically revealed preferences; Buyout investments;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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