In different parts of the world, we have different attitudes to money , spending and value different things importantly. Does this mean that we require different micro Economic theories which are dependent on where we are in the world ? If yes, how does Economic vary between countries of different cultures?


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Does culture effect micro economics?

Culture does not affect all microeconomics, but it certainly has an influence over significant array of microeconomic outcomes. In fact there is whole subfield called cultural economics/economics of culture.

Does this mean that we require different micro Economic theories which are dependent on where we are in the world ?

Not at all. Let me give you an example. A basic 2-period model of saving would be given by:

$$U(c_1,c_2)= u(c_1) + \beta u(c_2) \text{ s.t. } c_1 + c_2/(1+r) = y_1 + y_2/(1+r) -s + h(s)/(1+r)$$

where $U$ is utility, $c_i$ consumption in period i, $\beta$ discount rate, $r$ interest rate, $y_i$ income in period i, $s$ saving in period 1 and $h(s)$ return on saving.

Now you can use this same standard model to study different cultures. For example, suppose we have "myopic culture" (i.e. this would be using Hofstede's cultural dimensions short term oriented culture). That is culture where short term consumption and gratification is encouraged, and then suppose we have "thrifty culture" (i.e. using Hofstede's cultural dimensions this would be long term orientation), that is it would be culture that values saving and postponing gratification.

Now actually both cultures can be represented the same model presented above. The "myopic culture" would have very low $\beta_m$ meaning they primarily value present consumption and don't care about future that much. The "thrifty culture" would have higher $\beta_t$ (so that $\beta_t>\beta_m$) meaning they value future more. We can use these two different betas to study how savings will differ between the cultures and we would find that all else equal the thrifty culture will save more than the myopic culture.

So we have exactly the same microeconomic model and general theory applied to two completely different cultures. The above is not just a single unrepresentative example. I would say that almost all general micro could be used across all cultures and to study differences between them. For example, almost all models in Varian Microeconomic Analysis could be adapted across different cultures in the world.

This being said there would be few examples where its very difficult to have general models. The main area where you need new theories are institutions. For example, according to sharia law banks are not allowed to charge interest to consumer. In that case you need a different microeconomic model of a bank because you cannot use the standard model where bank charges interest. So when it comes to cultural institutions and study of those new models might be required more often than just in general microeconomics.

However, this being said microeconomic principles are fundamentally same everywhere. Culture affects parameter values you fit model with, not the general principles of human behavior.

  • $\begingroup$ By calibrating the parameters of the model supposing unboundedly rational agents who only value their material well-being, you can* model all sorts of cultures. (*Note that accuracy was not examined when we discussed whether modelling was feasible.) $\endgroup$
    – Giskard
    Jun 30, 2022 at 7:45
  • $\begingroup$ @Giskard but the model above is just one example, you can have basic model with co dependent utility with some parameter that determines the strength of co dependence. When I was talking about fitting a model I meant model of what you want to examine (Eg saving behavior, consumption patterns etc). I did not meant that the 2 period example itself can be used for everything. Also the above applies to not just microeconomics but also macro, behavioral Econ etc the question just exclusively asked about micro. Also even game theory with assumptions of utility max, is used in biology to examine $\endgroup$
    – 1muflon1
    Jun 30, 2022 at 9:46
  • $\begingroup$ Behavior of animals so micro can be applied even cross-species, I don’t think it’s controversial to say it can be applied cross-culture $\endgroup$
    – 1muflon1
    Jun 30, 2022 at 9:54
  • $\begingroup$ If you believe micro can be applied cross-species, I am sure I cannot convince you that you are overselling when you are claiming that the model parameters account for culture in more than a very narrow sense. $\endgroup$
    – Giskard
    Jun 30, 2022 at 10:37
  • $\begingroup$ Your comment does highlight that before answering "yes", it would have probably been wise to determine what OP means by microeconomics. $\endgroup$
    – Giskard
    Jun 30, 2022 at 10:39

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