Challenging Conformity: A Case for Diversity

Kets, Willemien and Sandroni, Alvaro (2015): Challenging Conformity: A Case for Diversity.

Abstract

Why do diverse groups outperform homogeneous groups in some settings, but not in others? We show that while diverse groups experience more frictions than homogeneous ones, they are also less conformist. Homogeneous groups minimize the risk of miscoordination, but they may get stuck in an inefficient equilibrium. Diverse groups may fail to coordinate, but if they do, they tend to attain efficiency. This fundamental tradeoff determines how the optimal level of diversity varies with social and economic factors. When it is vitally important to avoid miscoordination, homogeneous groups are optimal. However, when it is critical to implement new and efficient practices, diverse groups perform better.

• Item Type: MPRA Paper
• Language: English
• Keywords: Diversity, conformity, coordination, introspection, Theory of Mind
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D2 - Production and Organizations > D20 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General

References

Akerlof, G. A. and R. E. Kranton (2000). Economics and identity. Quarterly Journal of Economics 115, 715-753.

Akerlof, G. A. and R. E. Kranton (2005). Identity and the economics of organizations. Journal of Economic Perspectives 19, 9-32.

Alesina, A., J. Harnoss, and H. Rapoport (2013). Birthplace diversity and economic prosperity. Working Paper 18699, NBER.

Alesina, A. and E. La Ferrara (2005). Ethnic diversity and economic performance. Journal of Economic Literature 43, 762-800.

Aliprantis, C. and K. Border (2006). Infinite Dimensional Analysis: A Hitchhiker's Guide (3rd ed.). Springer.

Aumann, R. J. (1987). Correlated equilibria as an expression of Bayesian rationality. Econo- metrica 55, 1-18.

Bacharach, M. and D. O. Stahl (2000). Variable-frame level-n theory. Games and Economic Behavior 32, 220-246.

Baron, J. N., M. D. Burton, and M. T. Hannan (1996). The road taken: Origins and evolution of employment systems in emerging companies. Industrial and Corporate Change 5, 239-275.

B�enabou, R. (2013). Groupthink: Collective delusions in organizations and markets. Review of Economic Studies 80, 429-462.

Bernheim, B. D. (1994). A theory of conformity. Journal of Political Economy 102, 841-877.

Bicchieri, C. and Y. Fukui (1999). The great illusion: Ignorance, informational cascades, and the persistence of unpopular norms. Business Ethics Quarterly 9, 127-155.

Billingsley, P. (1968). Convergence of Probability Measures (1st ed.). Wiley.

Bisin, A., E. Patacchini, T. Verdier, and Y. Zenou (2015). Bend it like Beckham: Ethnic identity and integration. Working paper.

Bisin, A. and T. Verdier (2001). The economics of cultural transmission and the dynamics of preferences. Journal of Economic Theory 97, 298-319.

Blume, L. E. (1995). The statistical mechanics of best-response strategy revision. Games and Economic Behavior 11, 111-145.

Bowers, C. A., J. A. Pharmer, and E. Salas (2000). When member homogeneity is needed in work teams: A meta-analysis. Small Group Research 31, 305-327.

Camerer, C. F. and M. Knez (2002). Coordination in organizations: A game-theoretic perspective. In Z. Shapira (Ed.), Organizational Decision Making, Chapter 8. Cambridge University Press.

Carlsson, H. and E. van Damme (1993). Global games and equilibrium selection. Econometrica 61, 989-1018.

Cartwright, S. and C. L. Cooper (1993). The role of culture compatibility in successful organizational marriage. Academy of Management Executive 7, 57-70.

CBS 60 Minutes (2013, January 7). How to design breakthrough inventions?

Chen, R. and Y. Chen (2011). The potential of social identity for equilibrium selection. American Economic Review 101, 2562-2589.

Crawford, V. P., M. A. Costa-Gomes, and N. Iriberri (2013). Structural models of nonequilibrium strategic thinking: Theory, evidence, and applications. Journal of Economic Literature 51, 5-62.

Crawford, V. P. and H. Haller (1990). Learning how to cooperate: Optimal play in repeated coordination games. Econometrica 58, 571-595.

Creemer, J. (1993). Corporate culture and shared knowledge. Industrial and Corporate Change 2, 351-386.

Cushman, J. (1990). Avianca flight 52: The delays that ended in disaster. New York Times. February 5.

De Dreu, C. K. W. (2006). When too little or too much hurts: Evidence for a curvilinear relationship between task conflict and innovation in teams. Journal of Management 32, 83-107.

de Vignemont, F. and T. Singer (2006). The empathic brain: How, when and why? Trends in Cognitive Sciences 10 (10), 435-441.

Dezs}o, C. L. and D. G. Ross (2012). Does female representation in top management improve firm performance? A panel data investigation. Strategic Management Journal 33, 1072-1089.

Duncan, O. D. and B. Duncan (1955). A methodological analysis of segregation indices. American Sociological Review 20, 200-217.

Eisenhardt, K. M. (1989). Making fast strategic decisions in high-velocity environments. Academy of Management Journal 32, 543-576.

Elfenbein, H. A. and N. Ambady (2002). On the universality and cultural specificity of emotion recognition: A meta-analysis. Psychological Bulletin 128, 243-249.

Epley, N. and A. Waytz (2010). Mind perception. In S. T. Fiske, D. T. Gilbert, and G. Lindzey (Eds.), Handbook of Social Psychology (Fifth ed.), Volume 1, Chapter 14. Wiley.

Gersick, C. J. and J. R. Hackman (1990). Habitual routines in task-performing groups. Organizational Behavior and Human Decision Processes 47, 65-97.

Gibbons, R. and J. Roberts (Eds.) (2013). Handbook of Organizational Economics. Princeton University Press.

Greenstein, F. I. (1988). Leadership in the Modern Presidency. Harvard University Press. Grout, P. A., S. Mitraille, and S. Sonderegger (2014). The costs and benefits of coordinating with a different group. Working paper, University of Nottingham.

Gudykunst, W. B. (2004). Bridging Differences: Effective Intergroup Communication. SAGE.

Harsanyi, J. C. and R. Selten (1988). A General Theory of Equilibrium Selection in Games. MIT Press.

Hermalin, B. E. (2013). Leadership and corporate culture. In R. Gibbons and J. Roberts (Eds.), Handbook of Organizational Economics, pp. 432-478. Princeton University Press.

Hofstede, G. (2001). Culture's Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations. SAGE.

Hong, L. and S. E. Page (2001). Problem solving by heterogeneous agents. Journal of Economic Theory 97, 123-163.

Jackson, M. O. and Y. Xing (2014). Culture-dependent strategies in coordination games. Proceedings of the National Academy of Sciences 111, 10889-10896.

Jackson, S. E. and A. Joshi (2011). Work team diversity. In S. Zedeck (Ed.), APA Handbook of Industrial and Organizational Psychology, Volume 1, Chapter 20. American Psychological Association.

James, W. (1890/1983). Principles of Psychology. Harvard University Press.

Janssen, M. C. W. (2001). Rationalizing focal points. Theory and Decision 50, 119-148.

Kahneman, D. (2011). Thinking, Fast and Slow. Macmillan.

Kandori, M., G. J. Mailath, and R. Rob (1993). Learning, mutation, and long run equilibria in games. Econometrica 61, 29-56.

Kets, W. and A. Sandroni (2015a). A belief-based theory of homophily. Working paper, Northwestern University.

Kets, W. and A. Sandroni (2015b). A rational approach to coordination. Mimeo, Northwestern University.

Kreps, D. M. (1990). Corporate culture and economic theory. In J. Alt and K. Shepsle (Eds.), Perspectives on Positive Political Economy, pp. 90-143. Cambridge University Press.

Kuran, T. and W. Sandholm (2008). Cultural integration and its discontents. Review of Economic Studies 75, 201-228.

Lazear, E. P. (1999a). Culture and language. Journal of Political Economy 107 (S6), S95-S126.

Lazear, E. P. (1999b). Globalisation and the market for team-mates. Economic Journal 109, C15-C40.

Le Coq, C., J. Tremewan, and A. K. Wagner (2015). On the effects of group identity in strategic environments. European Economic Review 76, 239-252.

Locke, J. (1690/1975). An essay concerning human understanding. Oxford University Press.

Mailath, G. J. (1998). Do people play Nash equilibrium? Lessons from evolutionary game theory. Journal of Economic Literature XXXVI, 1347-1374.

McKelvey, R. D. and T. R. Palfrey (1995). Quantal response equilibria for normal form games. Games and Economic Behavior 10, 6-38.

Mehta, J., C. Starmer, and R. Sugden (1994). The nature of salience: An experimental investigation of pure coordination games. American Economic Review 84, 658-673.

Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. Public Affairs.

Mill, J. S. (1872/1974). A system of logic, ratiocinative and inductive, Volume 7 of Collected works of John Stuart Mill. University of Toronto Press.

Mokyr, J. (1990). The Lever of Riches: Technological Creativity and Economic Progress. Oxford University Press.

Morris, S. (2000). Contagion. Review of Economic Studies 67, 57-78.

Ottaviano, G. I. P. and G. Peri (2006). The economic value of cultural diversity: Evidence from US cities. Journal of Economic Geography 6, 9-44.

Page, S. E. (2007). The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies. Princeton University Press.

Peri, G. (2012). The effect of immigration on productivity: Evidence from U.S. states. Review of Economics and Statistics 94, 348-358.

Pfeffer, J. and R. I. Sutton (1999). Knowing ``what'' to do is not enough: Turning knowledge into action. California Management Review 42, 83-108.

Phillips, K. W., G. B. Northcraft, and M. A. Neale (2006). Surface-level diversity and decisionmaking in groups: When does deep-level similarity help? Group Processes & Intergroup Relations 9, 467-482.

Prat, A. (2002). Should a team be homogenous? European Economic Review 46, 1187-1207.

Rao, H., R. Sutton, and A. P. Webb (2008). Innovation lessons from Pixar: An interview with Oscar-winning director Brad Bird. McKinsey Quarterly. April.

Reagans, R. and E. W. Zuckerman (2001). Networks, diversity, and productivity: The social capital of corporate R&D teams. Organization Science 12, 502-517.

Richard, O., A. McMillan, K. Chadwick, and S. Dwyer (2003). Employing an innovation strategy in racially diverse workforces: Effects on firm performance. Group & Organization Management 28, 107-126.

Robalino, N. and A. J. Robson (2015). The evolution of strategic sophistication. American Economic Review. forthcoming.

Russell, B. (1948). Human knowledge: Its scope and limits. George Allen & Unwin.

Schelling, T. (1960). The Strategy of Conflict. Harvard University Press.

Simons, T., L. H. Pelled, and K. A. Smith (1999). Making use of difference: Diversity, debate, and decision comprehensiveness in top management teams. Academy of Management Journal 42, 662-673.

Sugden, R. (1995). A theory of focal points. Economic Journal 105, 533-550.

Triandis, H. C. and E. M. Suh (2002). Cultural influences on personality. Annual Review of Psychology 53, 133-160.

Van den Steen, E. (2010). Culture clash: The costs and benefits of homogeneity. Management Science 56, 1718-1738.

Van Huyck, J. B., R. C. Battalio, and R. O. Beil (1991). Strategic uncertainty, equilibrium selection, and coordination failure in average opinion games. Quarterly Journal of Economics 106, 885-910.

Weber, R. A. and C. F. Camerer (2003). Cultural conflict and merger failure: An experimental approach. Management Science 49, 400-415.

Wiersema, W. F. and K. A. Bantel (1992). Top management team demography and corporate strategic change. Academy of Management Journal 35, 91-121.

Young, H. P. (1993). The evolution of conventions. Econometrica 61, 57-84.