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Valuing Cultural Differences in Behavioral Economics

ICFAI Journal of Behavioral Finance, Vol. 4, pp. 32-47, 2007

21 Pages Posted: 8 May 2006  

Justin D. Levinson

University of Hawaii - William S. Richardson School of Law

Kaiping Peng

University of California at Berkeley

Abstract

Behavioral economic research has tended to ignore the role of cultural differences in financial and economic decision-making. The authors suggest that a systematic bias affects existing behavioral economic theory¬ófinancial and economic judgments, whether rational or irrational, are often assumed to be universal. The authors conducted an empirical study in the United States and China to examine how cultural background informs economic decision-making and to test whether framing, morality, and out-group information affects judgments of financial value and property ownership across cultures.

Results of the study demonstrated dramatic cultural differences in financial value estimations, as well as on the influence of variables such as framing, morality and group membership. Chinese participants made higher object value estimates than Americans did, even when adjusting for differing national inflation rates. In addition, the results showed that framing effects affected both American and Chinese participants, but in different ways. Other contextual factors such as morality information and group membership also affected Chinese participants' judgments of financial values and property ownership. The results underscore the importance of understanding the influence of cultural background on economic decision-making.

Keywords: Financial value, behavioral economics, behavioral finance, cross-cultural differences, cultural psychology, framing effects, china, appreciation estimates

JEL Classification: A12, A10, D12, D46, D80, F00, F30, K00, N15

Suggested Citation

Levinson, Justin D. and Peng, Kaiping, Valuing Cultural Differences in Behavioral Economics. ICFAI Journal of Behavioral Finance, Vol. 4, pp. 32-47, 2007. Available at SSRN: https://ssrn.com/abstract=899688

Justin Levinson (Contact Author)

University of Hawaii - William S. Richardson School of Law ( email )

2515 Dole Street
Honolulu, HI 96822-2350
United States

Kaiping Peng

University of California at Berkeley ( email )

Berkeley, CA
United States

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