How can knowing about a region or culture help you understand a story? 

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It is axiomatic that the cultural milieu of a work of fiction is integral to the development of character and plot.  Most always, the protagonists or other characters are acting outside or inside the cultural norms and their characters are depicted in light of these conformities or deviations.  Any piece of fiction you select – Forster’s A Passage to India, Balzac’s Pere Goriot, Hawthorne’s Scarlet Letter, etc. – depends on the societal norms to tell the story.  When the reader understands British colonialism, or when the reader understands the culture of 19th century Paris, or when the reader is comfortable with the moral strictures of New England, these novels work well.  Without some cultural background knowledge, the events in the cave, the dilemma of the old father, or Hester’s shame would not have any impact.  Of course, at the same time, the reader’s knowledge about other cultures is enhanced by the stories themselves.  For example, until reading Pere Goriot, one may not know anything about 19th century Paris, but after reading it, one has a vivid picture of the cobblestone streets, the layers of social prestige, the flow of wealth, etc.