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The Role of Cognitive Frames in Societal Rigidity and Change

All economists agree that perceptions (beliefs) affect actions (choices). We argue here that perception is shaped by cognitive frames that are collectively held and malleable over time and are themselves constrained by fundamental values. Allowing for ―equilibrium bias‖ in perceptions may explain the existence across societies of very different belief systems and cognitive frames. This paper sketches a general approach to societal equilibrium and evolution that clarifies the critical—and unrealistic—assumptions about individual behavior and cognition that underlie what has become the dominant developmental model within the economics literature, based on rational expectations. The central departure from rational expectations in our approach is to assume that individuals start with priors (primitive beliefs) that shape perception and performance. To illustrate this approach, the study focuses on race—categories into which individuals put themselves and others, which have had and continue to have large impacts on social interactions and economic outcomes. The study shows how an inefficient equilibrium with inequality between different ―races‖ can emerge and persist even if the groups do not differ in any economically relevant characteristic nor face any difference in incentives. Our approach provides an interpretation of both societal rigidity and change. For instance, ―racial‖ differentiation persisted partly because economic agents discarded information that was inconsistent with prior (racist) beliefs. But ―deeper‖ belief systems that limit the set of beliefs that can obtain legitimacy may have a life of their own and lead to situations where commonly used cognitive frames and these deeper beliefs are out of sync. Racial differentiation was incompatible with growing beliefs in equality, with the tension contributing to major societal change. _ *A short, more formal treatment of the arguments presented here appears in our paper ―Equilibrium Fictions: A Cognitive Approach to Societal Rigidity,‖ American Economic Review, Papers & Proceedings, 100 (May 2010), pp. 141-146. We are grateful to Roland Bénabou, Cristina Bicchieri, Varun Gauri, and seminar participants at Brown University (Economics) and University of California-Berkeley (Sociology) for valuable comments on earlier drafts. Special thanks go to Alana Bevan and Rebecca Wieters for outstanding research assistance.