Willemien Kets, University of Oxford

"A Theory of Strategic Uncertainty and Cultural Diversity"

Abstract

This paper presents a novel mechanism through which culture can affect behavior. Cultural diversity matters because it influences the degree of strategic uncertainty that players face. We model this by building on research in psychology on perspective taking. The model delivers comparative statics that are broadly consistent with experimental evidence and that are difficult to obtain with existing methods. In addition, it can account for a variety of disparate evidence, including why inefficient social customs persist in some societies but not in others and why exclusively targeting incentives may not help with resolving collective action problems.

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