Traditional economics assumes that culture does not affect economic behavior. Even behavioral economists generally assume that the biases in judgment and decisionmaking identified in experiments with U.S. subjects are universal among homo sapiens. But in the last three decades, first psychologists and then economists have found systematic differences across cultures in the way otherwise similar individuals respond to the same situation. “People think and feel and act in culture-specific ways,” the sociologist Paul DiMaggio and the psychologist Hazel Markus argue. One new research program seeks to discover cases in which features of human behavior that were thought to be universal are culturally specific.

A prior finding in economics is that pairs of individuals who interact repeatedly will almost surely coordinate on an efficient and cooperative equilibrium. However, all the participants in the experiments were U.S. university students.

In 10 villages in Uttar Pradesh, India, we conducted a similar experiment with 122 high- and low-caste men to shed light on how culture affects the ability of people to form efficient conventions. Our findings, supplemented by ethnographic evidence, suggest that there are cultural differences in whether a coordination game loss that is caused by another’s action is perceived as an insult to which one should retaliate.

What happens when high- and low-caste men play a coordination game of common interest?

Our team described the coordination game (the Stag Hunt) to participants in this way: You can choose to make either a larger or a smaller investment in a joint project. Making the larger investment yields a high return if the other player also makes the larger investment, but you will lose money (half of your endowment for the period) if the other player makes the smaller investment. Making the smaller investment yields a low return to the investor no matter what the other player does.

The game presents a very simple problem of learning how to cooperate: The players have common interests. Both will want to make the larger investment as long as they believe that their partner will also make the larger investment. Will they come to believe that?

Uttar Pradesh is a good place to study the effects of culture on convention formation because people from two broad cultures—high and low castes—live in the same villages; and the villages, which are dominated by the high castes, have remarkably inefficient conventions. Jean Dreze and colleagues describe the situation as political and social inertia. Villagers do not coordinate on tasks of common interest, such as sanitation, timing planting to maximize output, and draining household wastewater to keep dirt paths dry and safely passable.

But the disadvantage of using high and low castes to study the impact of culture is that the two groups differ in many ways besides culture—in particular, in wealth, education, and political power. We control for wealth and as many other differences as we can. In India, there are high-caste households that are poor and low-caste households that are well-off.

From each of 10 villages, we recruited representative samples of men from high (General) and low (Scheduled) castes. Each subject played five rounds of the Stag Hunt with an anonymous player of the same caste status, and another five rounds with a player of different caste status. We randomized the order.

What did we see?

Only in the low castes did most pairs of men quickly form a cooperative convention—see Panel A of the figure. In the fifth period, two-thirds of low-caste pairs (LL) were cooperating, and in the tenth period, 80 percent were.

In contrast, most high-caste pairs (HH) did not form a cooperative convention and there was no trend in outcomes of fixed pairs either over periods 1-5 or periods 6-10. In period 5, fewer than one-fifth of HH pairs were cooperating. In period 10, under one-half were cooperating. The remaining pairs were either in coordination failure or were making the smaller investment. The non-cooperative convention appears to have emerged in one-third of the HH pairs by period 10 (see Panel B).

Recall that the observations in panels A and B are for distinct groups of players: participants in the HH or LL pairs in period 1-5 were not in such pairs in period 6-10.

What is interesting to note is that high- and low-caste players behaved in very similar ways in all periods except (1) the first period (when the proportion who made the larger investment was 68 percent for low-caste, compared to 53 percent for high-caste participants) and (2) the period after a player incurred a loss from a coordination failure. Why the difference in response to a loss? The high- and low-caste players appear to interpret the loss differently or, if they interpret it in the same way, to differ in their preference for retaliation. Since the loss would have been avoided if the other player had cooperated, it could be categorized as an insult, for which the culturally appropriate response for a high-caste man is retaliation.

Is retaliating a luxury, so that only the better off do it? Can one explain why the high-caste retaliate more by their having greater average wealth? The answer is no. When we restrict the sample to the poorest players—those who live in thatched mud huts—the gap between high and low castes is larger. Among players who live in mud huts, the probability of continuing in the next period to make the larger investment after incurring a loss is 72 percentage points lower in HH than LL pairs. But among players who do not live in mud huts, the probability is only 38 percentage points lower in HH than LL pairs. Viewing retaliation as a luxury, or as an expression of feelings of entitlement of the rich, cannot explain why high-caste participants disproportionately retaliate.

To study cultural norms for retaliation, we implemented a vignette-based survey in 22 hamlets. We presented individuals with hypothetical scenarios in which one person harms another. We asked each person in the sample how he would respond to the harm. In cases in which the motivation behind the harm was ambiguous, a much larger proportion of high-caste than low-caste respondents said they would retaliate aggressively. Typical comments were, “I would do tit for tat, otherwise people will think I am weak” and “it is wrong to cause a loss.”

In a culture of honor, “honor” is synonymous with a reputation for responding aggressively to perceived offenses. This reputation, it is believed, deters others from challenging one’s authority or position.

What you see depends on what ideas are most accessible

Construal—the way a person understands the world or a particular situation—is an underutilized concept in explaining economic behavior. Individuals don’t respond to objective situations; they respond to situations as they perceive and interpret them.

A famous example that illustrates how the accessibility of different concepts affects perception is the next figure. What do you see in the figure?

When asked in October, most of the subjects (recruited as they entered a zoo in Zurich) said it was a bird, but when asked on Easter Sunday, most said it was a bunny. Expectations have a biasing effect on perception. The bunny is very accessible to Westerners at Easter, but not in the fall. Thus, at Easter most see in the figure a bunny, and in the fall most see a bird (the type of bird most often named was a duck).

High-caste boys in villages are often taught from an early age to take revenge against slights. This makes honor a very accessible concept to high-caste males. A culture of honor has been described as a “mediative concept” through which individuals interpret reality. This culture is stronger among high castes than low castes in rural North India. It is strong in many groups around the world, for example, men in the U.S. South and young males in U.S. ghettos; a wonderful novel of an ancient culture of honor is Kadare’s “Broken April.”

The evidence suggests that many high-caste men construe their losses from coordination failures as insults, instead of innocent mistakes. They have been taught to retaliate against insults. Retaliating in the coordination game (by making the smaller investment in the joint project) makes it more difficult for players to converge on expectations that they will both make the larger investment.

Policy implications of economic mobility

Economic development increases mobility, and mobility increases the number of people at risk of falling in status. The poor, high-caste subjects in our experiment—people whose ancestors were presumably high in the distribution of income—were the least able to learn to cooperate. This suggests that economic development may exacerbate problems of poor coordination among villagers in North India.

But policies can change how people construe situations and how they respond to them. There have been successes in interventions to change construals that reduce violence among young males with a culture of honor in Chicago ghettos and among claimants to land in post-civil war Liberia. That high-caste men often retaliate against innocent losses from a coordination failure suggests the value of similar kinds of interventions in villages in North India.