How Culture Changes our Tolerance for Uncertainty

Read this blog post to learn more about:

• Why tolerance of uncertainty is shaped by culture rather than personality alone

• How cultural attitudes towards risk influence entrepreneurship, innovation, and economic decision-making

• Why the same business strategy or public policy can succeed in one country but fail in another

• How cultural differences affect risk perception, decision framing, and responses to uncertainty

Uncertainty is an essential aspect of economic and social decision-making‚ but varies widely across countries and cultures․ Although most economic literature continues to adopt a stable and individualistic conception of risk attitudes‚ a large body of research in cultural psychology‚ behavioral economics‚ and institutional economics suggests that tolerance of uncertainty is largely dependent on culture (Hsee & Weber, 1999; Weber & Hsee, 1998; Hofstede, 2001)․ These cultural distinctions also mean that attitudes towards risk dislike can differ depending on culture‚ and may influence risk framing‚ evaluation‚ and justification in entrepreneurship‚ finance‚ public policy‚ and everyday life (Hofstede, 2001; House et al., 2004)․

One of the most widely used models for the cultural constructs behind uncertainty tolerance is the cultural dimension of uncertainty avoidance (UA) by Geert Hofstede․ This dimension is defined as the extent to which a society believes that uncertainty is threatening (Hofstede, 2001)․ Cultures with a high uncertainty avoidance prefer rules‚ regulations‚ and other forms of social control to reduce uncertainty and provide stability‚ whereas those with a low uncertainty avoidance feel comfortable in situations with an unknown outcome and do not feel a strong need for predictability․ These orientations are embedded into educational systems‚ work environments‚ and legal structures‚ beyond psychological preferences (Hofstede, 2001; Aycan et al., 2000)․

Tolerance of uncertainty and ambiguity‚ for instance‚ may cause countries to compare risk differently․ High-UAI countries prefer stable employment‚ incremental innovation‚ and guaranteed paybacks‚ instead of being willing to sacrifice time for a higher future return․ Low uncertainty avoidance on the other hand‚ is associated with new business start-ups‚ occupational mobility and financial risk taking tendencies (Hayton et al., 2002; Stephan & Uhlaner, 2010)․ Countries associated with high uncertainty avoidance have shown to be more risk-averse and cautious about starting a business (Hayton et al., 2002)․ The patterns also suggest that individual risk dislike is partly a reflection of social norms regarding the appropriate response to uncertainty within a given domain(Weber & Hsee, 1998; Weber et al., 2002)․

Cultural variation also influences the emphasis of decision framing ․ Behavioral economics has documented systematic differences in how people navigate economic decisions depending on whether potential consequences are framed as gains or losses in the work of Daniel Kahneman and Amos Tversky (Kahneman & Tversky, 1979)․ However‚ across cultures‚ the impact of framing effects may also be affected by the culture's attitude towards uncertainty and loss dislike (Levin et al., 1998)․ In cultures with a negative view of uncertainty‚ loss frames may have a larger effect and for gain frames‚ the effects may be larger in uncertainty accepting cultures where uncertainty is less seen as a threat (Weber & Hsee, 2000; Kühnen & Oyserman, 2002)․

These differing views of uncertainty have been observed in organizational and policy implications‚ such as regulatory acceptance of risk and the desire to avoid ambiguity in decision-making in high uncertainty-avoiding societies (Hofstede et al., 2010)․ In contrast‚ societies that have lower uncertainty avoidance may allow greater discretion and experimentation under short-term uncertainty‚ in order to foster innovation (Beugelsdijk & Welzel, 2018; Hofstede, 2001)․ In corporate decision-making‚ cultures may adopt a risk-averse or adaptive trial-and-error approach depending on their particular attitude toward uncertainty (Morris et al., 1994)․

Cultural tolerance of uncertainty is not constant․ It is influenced by historical experience and by the efficiency of institutions and economies․ Turbulent periods raise the demand for predictability‚ and long-term institutional trust increases acceptance of risk․ Understanding culture's role in uncertainty tolerance is of practical utility․ It explains why a policy or business model can be successful in one cultural context but fail in another and why decision-making models must align with local cultures (World Values Survey; Inglehart et al., 2014; Guiso et al., 2008)․

In sum‚ tolerance for ambiguity has implications for risk dislike and framing effects‚ and research on culture has important implications for understanding economic behavior and for policy‚ management‚ and research on innovation that calls for a broader approach (Hofstede, 2001; House et al., 2004)․

Reference list:

Aycan, Z., et al. (2000). Impact of Cultural Values on Organizational Practices. Journal of Cross-Cultural Psychology.

Beugelsdijk, S., & Welzel, C. (2018). Dimensions of National Culture. Journal of Cross-Cultural Psychology.

Guiso, L., Sapienza, P., & Zingales, L. (2008). Social Capital as Good Culture. Journal of the European Economic Association.

Gupta, V., et al. (2002). Societal Culture and Entrepreneurial Orientation. Journal of Business Venturing.

Hayton, J. C., George, G., & Zahra, S. A. (2002). National Culture and Entrepreneurship. Entrepreneurship Theory and Practice.

Hofstede, G. (2001). Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations. Sage.

Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Cultures and Organizations: Software of the Mind. McGraw-Hill.

House, R. J., et al. (2004). Culture, Leadership, and Organizations. Sage.

Hsee, C. K., & Weber, E. U. (1999). Cross-Cultural Differences in Risk Perception. Journal of Behavioral Decision Making.

Inglehart, R., et al. (2014). World Values Survey: Cultural Change and Persistence.

Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica.

Levin, I. P., et al. (1998). Framing and Choice in Risky Decision Making. Organizational Behavior and Human Decision Processes.

Morris, M. H., et al. (1994). National Culture and Entrepreneurial Potential. Journal of Business Research.

Stephan, U., & Uhlaner, L. M. (2010). Performance Based vs. Socially Supportive Culture. Journal of International Business Studies.

Tversky, A., & Kahneman, D. (1981). The Framing of Decisions and the Psychology of Choice. Science.

Weber, E. U., & Hsee, C. (1998). Cross-Cultural Differences in Risk Perception. Psychological Bulletin.

Weber, E. U., et al. (2002). Analyzing Risk Preferences Across Cultures. Risk Analysis.