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


Blind, Georg D; Lottanti von Mandach, Stefania (2021). Of pride and prejudice: agent learning under sticky and persistent stereotype. Journal of Economic Interaction and Coordination, 16(2):381-410.

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.

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.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:06 Faculty of Arts > Institute of Asian and Oriental Studies
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Business and International Management
Social Sciences & Humanities > Economics and Econometrics
Uncontrolled Keywords:Economics and Econometrics, Business and International Management
Language:English
Date:1 April 2021
Deposited On:07 Apr 2021 15:31
Last Modified:25 Jun 2024 01:38
Publisher:Springer
ISSN:1860-7128
OA Status:Hybrid
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.1007/s11403-020-00307-0
  • Content: Published Version
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)