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Equilibrium Fictions: A Cognitive Approach to Societal Rigidity

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  • Karla Hoff
  • Joseph E. Stiglitz

Abstract

This paper assesses the role of ideas in economic change, combining economic and historical analysis with insights from psychology, sociology and anthropology. Belief systems shape the system of categories ("pre-confirmatory bias") and perceptions (confirmatory bias), and are themselves constrained by fundamental values. We illustrate the model using the historical construction of racial categories. Given the post-Reformation fundamental belief that all men had rights, colonial powers after the 15th century constructed ideologies that the colonized groups they exploited were naturally inferior, and gave these beliefs precedence over other aspects of belief systems. Historical work finds that doctrines of race came into their own in the colonies that became the US after, not before, slavery; that out of the "scandal of empire" in India emerged a "race theory that cast Britons and Indians in a relationship of absolute difference"; and that arguments used by the settlers in Australia to justify their policies towards the Aborigines entailed in effect the expulsion of the Aborigines from the human race. Racial ideology shaped categories and perceptions in ways that we show can give rise to equilibrium fictions. In our framework, technology, contacts with the outside world, and changes in power and wealth matter not just directly but because they can lead to changes in ideology.

Suggested Citation

  • Karla Hoff & Joseph E. Stiglitz, 2010. "Equilibrium Fictions: A Cognitive Approach to Societal Rigidity," NBER Working Papers 15776, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15776
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    References listed on IDEAS

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    1. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 699-746.
    2. Edward L. Glaeser, 2005. "The Political Economy of Hatred," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 45-86.
    3. Marianne Bertrand & Dolly Chugh & Sendhil Mullainathan, 2005. "Implicit Discrimination," American Economic Review, American Economic Association, vol. 95(2), pages 94-98, May.
    4. Douglass C. North, 2005. "Introduction to Understanding the Process of Economic Change," Introductory Chapters,in: Understanding the Process of Economic Change Princeton University Press.
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    Cited by:

    1. Ghani, Ejaz & Kerr, William R. & O'Connell, Stephen D., 2014. "Political reservations and women's entrepreneurship in India," Journal of Development Economics, Elsevier, vol. 108(C), pages 138-153.
    2. Hoff, Karla & Stiglitz, Joseph E., 2016. "Striving for balance in economics: Towards a theory of the social determination of behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PB), pages 25-57.
    3. Afridi, Farzana & Li, Sherry Xin & Ren, Yufei, 2015. "Social identity and inequality: The impact of China's hukou system," Journal of Public Economics, Elsevier, vol. 123(C), pages 17-29.
    4. Demeritt, Allison & Hoff, Karla, 2015. ""Small miracles"-- behavioral insights to improve development policy : World Development Report 2015," Policy Research Working Paper Series 7197, The World Bank.
    5. Hoff, Karla, 2015. "Behavioral economics and social exclusion : can interventions overcome prejudice ?," Policy Research Working Paper Series 7198, The World Bank.
    6. Hoff, Karla & Pandey, Priyanka, 2014. "Making up people—The effect of identity on performance in a modernizing society," Journal of Development Economics, Elsevier, vol. 106(C), pages 118-131.
    7. Joseph E. Stiglitz, 2017. "The Revolution of Information Economics: The Past and the Future," NBER Working Papers 23780, National Bureau of Economic Research, Inc.
    8. Subha Mani & Saurabh Singhal & Smriti Sharma & Utteeyo Dasgupta, 2016. "Caste differences in behaviour and personality Evidence from India," WIDER Working Paper Series 060, World Institute for Development Economic Research (UNU-WIDER).
    9. Guido Baldi, 2014. "Endogenous preference formation on macroeconomic issues: the role of individuality and social conformity," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 13(1), pages 49-58, June.
    10. David, Wozniak & Tim, MacNeill, 2015. "Lies, Discrimination, and Internalized Racism: Findings from the lab," MPRA Paper 67541, University Library of Munich, Germany.
    11. Ann Davis, 2012. "Panglossian Economics," Challenge, Taylor & Francis Journals, vol. 55(6), pages 67-87.
    12. Sikdar, Shiva, 2015. "On efforts in teams with stereotypes," Economics Letters, Elsevier, vol. 137(C), pages 203-207.

    More about this item

    JEL classification:

    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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