Putting the "psychic" back in psychic distance: Awareness, perceptions, and understanding as dimensions of psychic distance

Abstract

Unlike the IB literature whose emphasis within the term 'psychic distance' has been more on "distance" and less on "psychic," our starting point is all "psychic" and no "distance," assuming distance is defined as the difference between two countries. We propose that psychic distance be centered on the firm's managers and explain how their cognitive limitations, perceptions, heuristics, and experiences interact with a foreign environment to influence their decision making. We replace the conventional definition of distance with the cognitive dimensions of managerial awareness, perceptions, and understanding. Awareness captures the manager's consciousness of foreign context elements relevant to the firm's decision, perception is the manager's interpretation of the extent of these relevant environmental elements, and a manager's understanding captures the relationships among these context elements and the firm's decision. We argue that a multidimensional psychic distance construct is necessary as many of distance's problems are due to the illusion it promises of capturing a manager's perception of a complex foreign environment in a single number. Our approach eliminates distance's problems of symmetry and linearity. It also eliminates the constraint that distance is only associated with negative outcomes. After explaining the theoretical value of awareness, perception, and understanding by developing propositions predicting context traps, we present our operationalization of psychic distance. © 2013 Elsevier Inc.