A Theory of Strategic Uncertainty and Cultural Diversity

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 eviden...

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Bibliographic Details
Published in:The Review of economic studies 2021-01, Vol.88 (1), p.287-333
Main Authors: Kets, Willemien, Sandroni, Alvaro
Format: Article
Language:English
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Summary: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.
ISSN:0034-6527
1467-937X
DOI:10.1093/restud/rdaa037