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Psychic Distance  

Lars Håkanson

The term “psychic distance” has its origin in analyses of international trade patterns. However, it came to have major impact primarily in international business research, denoting the intangible costs associated with the collection, analysis, and interpretation of information about foreign markets, influencing geographical patterns and entry modes in the internationalization process of the firm. “Psychic distance” initially designated individual perceptions, but later operationalizations typically defined it as a country-level characteristic, most frequently in form of the so-called Kogut–Singh index of cultural distance based on Hofstede’s cultural dimensions. The concept’s origin and subsequent evolution created ambiguities and conundrums that survive to this day. These include the question whether to conceive and measure psychic distance at an individual-level or a country-level construct, the intriguing possibility that individuals may, perhaps systematically, under- or overestimate psychic distances, and how to determine empirically the existence and source of such misperceptions. Others emanate from the use of the metaphor of “distance,” which misleadingly suggests that psychic distances have the same characteristics as geographic distances, such as, for example, symmetry and stability. Recent research has resolved some of these issues; others are in need of further study.