Introspective equilibrium with stereotypes in diverse groups: A theoretical approach to stereotypes influence in coordination games

Abstract: In this paper, I show how stereotypes can confound the effects cultural diversity has on economic outcomes. This is done by expanding Kets and Sandroni’s (2021) theory of introspective equilibrium and cultural diversity by allowing inaccurate simplified beliefs about cultural groups. These simplified views (stereotypes) affect how strategic uncertainty is affected by diversity, the key mechanism of Kets and Sandroni’s model. This extension allows for more realism when modeling diverse groups while keeping the original model’s results.