Ethnic diversity deflates price bubbles

Abstract

Significance Markets are central to modern society, so their failures can have devastating effects. Here, we examine a prominent failure: price bubbles. We propose that bubbles are affected by ethnic homogeneity in the market and can be thwarted by diversity. Using experimental markets in Southeast Asia and North America, we find a marked difference: Market prices fit true values 58% better in diverse markets. In homogenous markets, overpricing is higher and traders’ errors are more correlated than in diverse markets. The findings suggest that price bubbles arise not only from individual errors or financial conditions, but also from the social context of decision making. Informing public discussion, our findings suggest that diversity facilitates friction that enhances deliberation and upends conformity.

Downsides of social capital

“…This result is regrettable because complex, modern economies can scarcely operate without such elements. As noted by Levine et al (1), modern corporations do not run on social capital but on explicit rules and tight control of particularistic motives. Levine et al's article provides a valuable corrective to communitarian celebration; given the importance of its findings, they should be replicated with other groups and in other national contexts in the future.…”

Multiple diversity concepts and their ethical-epistemic implications

“…Philosophers and social scientists have explored ways in which diversity might lead to epistemically better science or improve group performance in a variety of settings (Aggarwal and Wooley 2013;Bear and Wooley 2011;Engel et al 2014;Harding 2015;Hong and Page 2004;Intemann 2010a;Kitcher 1990;Levine et al 2014;Longino 1990Longino , 2002Lount and Phillips 2007;Loyd et al 2013;Muldoon 2013;Page 2017;Page 2007;Phillips 2014;Phillips et al 2009;Solomon 2001;Zollman 2010;Woolley et al 2010). In these literatures, diversity may pertain to social position, identity, value perspectives, theoretical orientation, task-related skills, and so on.…”

The Influence of National Culture on Marketing Strategies in Africa

“…In addition, they also found that ethnic values for the English-speaking community strongly influence the interest towards long term deals compared to the French-speaking community. Levine et al (2014) demonstrate that pricing strategies towards ethnic negatively impacts trading, while in diverse markets, price bubbles improve trading. Jamal, Peattie and Peattie (2012) highlight the case of minority groups in UK.…”

“…The literature suggests that consumers who display high religious beliefs are linked to low prices (Essoo and Didd, 2004) and that ethnic values influence price bubbles (Levine et al, 2014). If religious beliefs and ethnic values influence pricing, it is firstly because these cultural factors impact consumers shopping behaviour, and secondly because communities are most of the time grouped based on religious beliefs or ethnic values, enabling firms to target a range of consumers.…”