Linguistic Intervention Unlocks the Economic Gains of Diversity

Gains from trade generate prosperity, yet interpersonal
exchange can falter along racial lines. We examine this failure in incentivized
experimental economies where participants must spontaneously initiate and
sustain trading relationships with others whose race is visible. When the
highest gains from trade require cross-race exchange, diverse economies
underperform: welfare and specialization decline as many retreat toward
autarky. This underperformance stems not from segregation into racial trading
blocs, but from a collapse in exchange. Exchanges diminish and performance gaps
emerge, persist, and widen over time. Communication data show that lower
welfare co-varies with less voluminous dialogue characterized by less talk of
motivational drives (affiliation, achievement) and transparent state-signaling
(needs, deficits, surpluses). We conceptualize this as communicative
misalignment: observable, interactional patterns, within a shared language,
that raise the costs of search, bargaining, and enforcement. A brief linguistic
intervention equipping participants with a communicative toolkit increases
communication volume, the targeted categories, and conversational scaffolds
(verbs, function words). When cross-race exchange yields economic gains, the
intervention closes the performance gap by restoring specialization and diverse
trade; its minimal effects otherwise indicate that it alleviates this specific
misalignment rather than teaching generic language or trading skills. Language
thus operates bidirectionally. It both reveals the state of cooperation and
causally shapes it. Although we examine racial boundaries, the mechanism can
operate along any fault line where interactional norms diverge (e.g., culture,
hierarchy, geography). As the primary conduit of culture, language can impede
exchange at baseline but facilitate it when aligned. The intervention offers a
scalable micro-governance tool that reduces transaction costs.