This paper was prepared for John B. Taylor and Michael Woodford, Editors

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The psychologist Janis (1972) has documented with case studies how social patterns

(“groupthink”) within decision making groups can cause even highly intelligent people to make

disastrously wrong decisions.

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symbols, that is unique to each interconnected group of people; to each nation, tribe, or

social group.  People tend not to remember well facts or ideas that are not given attention

in the social cognition, even though a few people may be aware of such facts.  If one speaks

to groups of people about ideas that are foreign to their culture, one may find that someone

in the group will know of the ideas, and yet the ideas have no currency in the group and

hence have no influence on their behavior at large.

The array of facts, suppositions, symbols, categories of thought that represent a culture

have subtle and far-reaching affects on human behavior.  For a classic example, Durkheim

(1897), in a careful study of differing suicide rates across countries, found that there was no

apparent explanation for these differing rates other than cultural differences.

Cultural anthropologists have used methods of inferring elements of primitive culture

by immersing themselves in the society, observing their everyday life, and talking and

listening to them nonjudgmentally, letting them direct the conversation.  From such learning,

for example, Lévy–Strauss (1966, pp. 9–10) wrote persuasively that the customs of primitive

people that we may tend to view as inexplicably savage actually arise as a logical

consequence of a belief system common to all who belong to the society, a belief system

which we can grow to understand only with great difficulty:

The real question is not whether the touch of a woodpecker’s beak does in

fact cure toothache.  It is rather whether there is a point of view from which

a woodpecker’s beak and a man’s tooth can be seen as ‘going together’ (the

use of this congruity for therapeutic purposes being only one of its possible

uses) and whether some initial order can be introduced into the universe by

means of these groupings....  The thought we call primitive is founded on

this demand for order.

The same methods that cultural anthropologists use to study primitive peoples can also be

used to study modern cultures.  O’Barr and Conley (1992) studied pension fund managers

using personal interviews and cultural anthropological methods.  They concluded that each

pension fund has its own culture, associated often with a colorful story of the origin of their

own organization, akin to the creation myths of primitive peoples.  The culture of the

pension fund is a belief system about investing strategy and that culture actually drives

investment decisions.  Cultural factors were found to have great influence because of a

widespread desire to displace responsibility for decisions onto the organization, and because

of a desire to maintain personal relationships within the organization.

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Psychological research that delineates the factors that go into the formation of culture

has been undertaken under the rubric of social psychology and attitude change, or under

social cognition.  There is indeed an enormous volume of research in these areas.  For

surveys, one may refer to McGuire (1985) for attitude change or Levine and Resnick (1993)

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for social cognition.

One difficulty that these researchers have encountered with experimental work is that

of disentangling the “rational” reasons for the imitation of others with the purely

psychological.  Some recent economic literature has indeed shown the subtlety of the

informational influences on people’s behavior (learning from each other), see Bannerjee

(1992), Bikhchandani et al. (1992), Leahy (1994), and Shiller (1995).

A Global Culture

We see many examples of imitation across countries apparently widely separated by both

physical and language barriers.  Fashions of dress, music, and youthful rebellion, are

obvious examples.  The convergence of seemingly arbitrary fashions across nations is

evidence that something more is at work in producing internationally-similar human

behavior than just rational reactions to common information sets relevant to economic

fundamentals, see Featherstone (1990).

And yet it will not be an easy matter for us to decide in what avenues global culture

exerts its influence (Hannerz, 1990, p. 237):

There is now a world culture, but we had better make sure that we

understand what this means.  It is marked by an organization of diversity

rather than by a replication of uniformity.  No total homogenization of

systems of meaning and expression has occurred, nor does it appear likely

that there will be one any time soon.  But the world has become one

network of social relationships, and between its different regions there is

a flow of meanings as well as of people and goods.

Sociologists have made it their business to study patterns of influence within cultures,

and we ought to be able to learn something about the nature of global culture from their

endeavors.  For example, one study of patterns of influence regarded as a classic among

sociologists is the in-depth study of the town of Rovere by sociologist Robert Merton

(1957).  After extensive study of the nature of interpersonal influence, he sought meaningful

ways to categorize people.  He found that it was meaningful to divide people into two broad

categories:  locals (who follow local news and derive status by their connectedness with

others) and cosmopolitans (who orient themselves instead to world news and derive status

from without the community).  He found that the influence of cosmopolitans on locals

transcended both their numbers and their stock of useful information.  We must bear this

conclusion in mind when deciding how likely it is that incipient cultural trends are pervasive

across many different nations.

Reading such sociological studies inclines us to rather different interpretations of

globally similar behaviors than might occur naturally to many traditional economists.  Why

did the real estate markets in many cities around the world rise together into the late 1980s

and fall in the early 1990s?  (See Goetzmann and Wachter, 1996 and Hendershott, 1997.)

Why have the stock markets of the world moved somewhat together? Why did the stock

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