‘A Theory of Strategic Uncertainty and Cultural Diversity’ co-authored by Willemien Kets has been published in the Review of Economic Studies. In the article the authors propose a research program to systematically study the economic effects of cultural diversity.
How does diversity affect economic outcomes? The research identifies a new mechanism to account for the effects of diversity: Because people from different backgrounds have fewer shared experiences and less common ground, people may be less certain about what others might do if the society is diverse. The research 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.