Abstract
The reconcilability of actions and beliefs in inter-country relationships, either in business or politics, is of vital importance as incorrect beliefs on foreigners’ behavior can have serious implications. We study a typical inter-country interaction by means of a controlled laboratory investment game experiment in Germany, Israel and Palestine involving 400 student participants in total. An investor has to take a risky decision in a foreign country that involves transferring money to an investee/allocator. We found a notable constellation of calibrated and un-calibrated beliefs. Within each country, transfer standards exist, which investees correctly anticipate within their country. However, across countries these standards differ. By attributing the standard of their own environment to the other countries investees are remarkably bad in predicting foreign investors’ behavior. The tendency to ignore this potential difference can be a source of misinterpreting motives in cross-country interaction. Foreigners might perceive behavior as unfavorable or favorable differentiation, even though—unknown to them—investors actually treat fellow-country people and foreigners alike.
Highlights
The reconcilability of actions and beliefs in inter-country relationships is of vital importance as incorrect beliefs on foreigners’ behavior can have serious implications
To understand thealignment phenomenon we pursue the following research agenda: First, do we observe transfer standards—i.e. investments and beliefs on investments are wellcalibrated—to exist within the pools of participating subjects from different countries? Second, do the standards differ substantially between these subject pools? Third, do we find negative discrimination in investment behavior or are foreigners treated alike regardless of their origin? Fourth, are beliefs miscalibrated between countries, i.e., are beliefs on foreigners’ investments and back-transfers influenced by home-country standards and not adapted ?
Summary: In general, we find transfer standards to exist within countries as transfers and beliefs do not differ significantly within the three subject pools
Summary
The reconcilability of actions and beliefs in inter-country relationships is of vital importance as incorrect beliefs on foreigners’ behavior can have serious implications. While the failing of joint ventures due to the misalignment of partners’ expectations and behavior can result in high economic costs, these negative impacts are less dramatic in comparison to the possible effects on international relations. It has, for instance, been conjectured that the 1973 Yom Kippur War could have been prevented if the Nixon administration had believed Egyptian President Sadat’s announcements of going to war in case the United States would not actively engage in PLOS ONE | DOI:10.1371/journal.pone.0156998. Miscalibrated Beliefs between Germans, Israelis, Palestinians reconciliation negotiations between Egypt and Israel [2],[3] These examples highlight fatal ramifications resulting from incorrect predictions of foreigners’ behavior. We direct our attention to this phenomenon that has largely been neglected so far
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