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

Georg Blind and Stefania Lottanti von Mandach ()
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Stefania Lottanti von Mandach: University of Zurich

Journal of Economic Interaction and Coordination, 2021, vol. 16, issue 2, No 7, 410 pages

Abstract: 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.

Keywords: Heterogeneous agents; Reputation building; Stereotypes; Strategically revealed preferences; Buyout investments (search for similar items in EconPapers)
JEL-codes: D03 F65 G02 G23 Z13 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Modeling the „Visitors to Rome“ effect: Reputation Building in Anglo-Saxon Buyout Funds in Japan (2017)
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DOI: 10.1007/s11403-020-00307-0

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