The Influence of Culture on Decision Making in Trade 1 Gert Jan Hofstede*, Catholijn M. Jonker**, and Tim Verwaart*** *Wageningen University, Hollandseweg 1, 6706 KN Wageningen, e-mail: gertjan.hofstede@wur.nl **Delft University of Technology, Mekelweg 4, 2628 CD Delft, e-mail: C.M.Jonker@tudelft.nl ***LEI Wageningen UR, Postbus 29703, 2502 LS Den Haag, e-mail: tim.verwaart@wur.nl Abstract Misunderstandings arise in international trade due to difference in cultural background of trade partners. Trust and the role it plays in trade are influenced by culture. Considering that trade always involves working on the relationship with the trade partner, understanding the behaviour of the other is of the essence. This presentation proposes to involve cultural dimensions in the modelling of trust in trade situations. When playing trading games with people from different parts of the world, different patterns of trade and trust emerge [1]. This presentation focuses on the influence of culture on traders’ decision making. Hofstede’s theory [2] forms the basis of our analysis. We first discuss dimensions of national culture, and then we show how decision rules for the trading agents are affected by culture. The model of trade processes is based on transaction cost economics [3]. It involves the processes of searching, bargaining, contracting, monitoring, and enforcing of contracts. Traders’ perceptions, beliefs and decisions are influenced by cultural background. In the process of searching, culture sets preferences and limits to whom to do business with, and sets protocols for the way to open negotiations. When bargaining, culture defines what behavior is acceptable and what the role of personal relations and status differences is. The level of detail, conditions, and guarantees of contracts differ considerably across the world. So does the extent to which it is acceptable to use an opportunity to defect. Monitoring a contract and explicitly showing distrust is interpreted as an offense in some parts of the world, but is usual in other parts. When enforcing contracts, some cultures are more forgiving than others. Trust plays an important role in trade processes. However, it does not work in the same way across cultures. For instance, in some societies the emphasis is on interpersonal trust based on kinship; in others it is on interpersonal trust based on other markers; yet in others it is in impersonal institutions such as certification or law. Gorobets [4] demonstrated on the basis of a multi-agent simulation that economic systems based on trust as well as systems based on opportunism may be viable in different societies. Our work analyses the influence of culture on trade for each of Hofstede’s dimensions, and formulates a set of rules for implementation in trading agents [5, 6, 7, 8, 9]. With respect to trust, the rules work out at two levels. First, the relevance of trust based on experience or 1 Poster presentation at D-CIS Human Factors Day 2008, Delft, The Netherlands, 10 september 2008. reputation may be different across cultures; in some cultures family relations, xenophobia, or status differences may have much stronger influence than trust. Second, the effects of partner’s behavior on trust may be different across cultures. Results of simulations were verified at the macro level. Validation through combining human gaming and multi-agent simulations is one subject of current research [10]. Possible application areas are: • research in the social sciences, for instance development of trade networks and efficiency of institutional arrangements, • training and education, for instance in business schools and firms trading internationally, • negotiation support systems, that advise their users about inventory of preferences and interpretation of partner’s bids and appropriate replies. References [1] S.Meijer, G.J.Hofstede, G.Beers, S.W.F.Omta, 2006. Trust and Tracing game: learning about transactions and embeddedness in a trade network. Production Planning and Control 17: 569-583. [2] G.Hofstede, 2001. Culture’s Consequences, second edition. Sage Publications, Thousand Oaks. [3] O.E.Williamson, 1998. Transaction Cost Economics: how it works, where it is headed. De Economist 146 (1): 23-58. [4] A.Gorobets, B.Nooteboom, 2006. Agent Based modeling of Trust Between Firms in Markets. In C.Bruun. Advances in Artificial Economics. LNEMS 584: 121-132. Springer- Verlag. [5] G.J.Hofstede, C.M.Jonker, S.Meijer, T.Verwaart, 2006. Modelling Trade and Trust across Cultures. In K.Stølen et al. Trust Management: 4th International Conference, iTrust 2006, LNCS 3968: 120-134. Springer-Verlag. [6] G.J.Hofstede, C.M Jonker, T.Verwaart, 2008. Modeling Culture in Trade: Uncertainty Avoidance. In Proceedings of 2008 Agent-Directed Simulation Symposium (ADS’08). SCS, San Diego. 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