group identity, ingroup favoritism, and discrimination · 2020-02-17 · social groups. it has been...

Group Identity, Ingroup Favoritism,and Discrimination

Sherry Xin Li

ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Methodology Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Other-Regarding Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Distributional Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Reciprocal Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Gift Exchange Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Trust and Trustworthiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Cooperation and Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Prisoner’s Dilemma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Public Goods Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Norm Enforcement and Punishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16“Dark Side” of Group Identity and Group Bias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Underlying Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Endogenous Groups and Other Determinants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

AbstractThis chapter surveys the literature of the past 20 years on group identity andintergroup bias which serve as important underpinnings for labor market discrim-ination. Main economic domains are identified in which the literature has shownthe important influences of group identity. With exceptions, group identityleads to ingroup favoritism and outgroup discrimination in these domains.

S. X. Li (*)Department of Economics, University of Arkansas, Fayetteville, AR, USAe-mail: [email protected]

© Springer Nature Switzerland AG 2020K. F. Zimmermann (ed.), Handbook of Labor, Human Resources and PopulationEconomics, https://doi.org/10.1007/978-3-319-57365-6_123-1

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While minimal groups are found inadequate to generate a salient group identityto influence decision-making in strategic settings, minimal group identity cannonetheless be strengthened and, as a result, affect choices in broad economicsettings. The presence and magnitude of intergroup discrimination in artificiallyinduced or naturally occurring groups exhibit substantial heterogeneity acrossindividuals and are dependent on a broad range of economic, cultural, andpolitical factors. Preference- and belief-based mechanisms are both importantdrivers of intergroup discrimination.

Introduction

Labor market discrimination and its impact on labor market outcomes are amajor topic of the labor economics literature, to which Gary Becker’s (1957)The Economics of Discrimination has inspired an immense volume of contributions.Traditionally defined by its focus on regression-based empirical research, thisliterature has grown rapidly in experimental research during recent decades.Experiments – predominantly field (i.e., audit and correspondence studies) in paral-lel with a lesser amount of laboratory (i.e., simulated personnel decisions andbargaining experiments) – have been used to study labor market discriminationbased on, for instance, sex, race, ethnicity, age, and other factors (see recent surveysby Bertrand and Duflo (2017) and Neumark (2018)). Some main challenges posed inthese investigations – and particularly those that build from field experiments – relateto the difficulty to investigate potential discriminatory decision-making beyond thehiring stage and to disentangle different drivers of discrimination: taste or belief.

With that said, the past 20 years have also witnessed both an explosion ofeconomic research on social identity and group bias – an important building blockof discrimination – and a rapid uptake in the use of laboratory experiments in laboreconomics (Charness and Kuhn 2011). More specifically, new approaches have beendeveloped to tackle the field experiments’ limitations in studying labor marketdiscrimination and have consequently gleaned new insights for a more comprehen-sive understanding of its existence and underlying mechanisms.

Social identity is a person’s sense of self derived from perceived memberships ofsocial groups. It has been shown as a central concept in understanding such phe-nomena as ethnic, racial, and political conflicts, as well as discrimination in socialpsychology, sociology, anthropology, and political science since the development ofsocial identity theory (Tajfel and Turner 1979; reviewed in Brewer (1999) andAbdelal et al. (2009)). The concept of social identity was systematically introducedinto economics as “a microfoundation for earlier [discrimination] models” in theseminal work by Akerlof and Kranton (2000, p. 732). Since then, a vast volume ofeconomic research has shown that social identity (also referred to as group identityor group membership) often leads to group bias in decisions that involve differentgroups, in addition to its impact on individual decisions in settings that do not

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involve groups (e.g., Benjamin et al. 2010; Cohn et al. 2014). This chaptersurveys approximately 150 studies in this literature that relates to group bias anddiscrimination.

This chapter summarizes some general patterns of group bias that are observedin other-regarding preferences and a broad range of economic domains. Thesedomains encompass interactions between principals and agents (e.g., gift exchangerelationships, trust, and reciprocity), as well as those among agents themselves(e.g., cooperation, coordination, punishment, and contest). These findings allowinferences about discriminatory decision-making above and beyond the employer-employee interactions in the hiring stage. This chapter also shows that, notwith-standing some exceptional cases, group identity often engenders ingroup favoritismand outgroup discrimination; the presence and magnitude of its effects – be theidentity artificially induced or naturally occurring – exhibit a large degree ofheterogeneity across individuals and depend on numerous economic, cultural, andpolitical factors. In addition, experimental methods that directly measure other-regarding preferences and elicit beliefs allow researchers to better distinguish dif-ferent mechanisms underlying intergroup discrimination.

The remainder of this chapter is organized in the following way.Section “Methodology Overview” reviews the experimental methods that areused to study the effects of group identity in economic decision-making. Sections“Other-Regarding Preferences,” “Gift Exchange Relationships,” “Trust andTrustworthiness,” “Cooperation and Coordination,” “Norm Enforcement andPunishment,” and “Contest” review evidence in economic domains where groupidentity is found important. Section ““Dark Side” of Group Identity and Group Bias”provides discussions on the detrimental effects of group identity. Sections “Under-lying Mechanisms” and “Endogenous Groups and Other Determinants” reviewpossible mechanisms underlying group bias and endogeneity in group formation,respectively. Section “Summary” summarizes this chapter with suggested directionsfor future research.

Methodology Overview

In the neoclassical model of identity proposed by Akerlof and Kranton (2000),individual j’s utility Uj is determined by her identity Ij, her action aj, and others’action a�j (Eq. 1). Her identity Ij depends on how well her actions aj match the idealbehavior P prescribed by her assigned category cj (Eq. 2). She maximizes Uj bychoosing actions aj, given a�j, cj, P, and her characteristics ϵj. Any deviations of ajfrom the norms P result in utility loss.

Uj ¼ Uj aj, a�j, Ij� � ð1Þ

Ij ¼ Ij aj, a�j; cj, ϵj,P� � ð2Þ

Group Identity, Ingroup Favoritism, and Discrimination 3

This model is applied to understanding gender discrimination, poverty and socialexclusion, labor division within households, investment in human capital, andcontract theory (Akerlof and Kranton 2000, 2002, 2005), redistributive policies(Shayo 2009), and bargaining (Smith 2012). Other theoretical research emphasizesindividuals’ endogenous choices of and investments in identities (Fang and Loury2005; Bénabou and Tirole 2011; Akerlof 2016; Bernard et al. 2016).

Most empirical investigations in the literature rely on experimental approaches(see Mealli, ▶ “Design and Analysis of Experiments”), given the general scarcity ofidentity-related information, as well as the challenges involved in isolating causalrelationships between social identity and economic choices using observational data.These investigations pertain to either naturally existing social identity or artificialgroup identity induced in the laboratory. Other recent survey papers also provideexcellent reviews or meta-analysis on this literature such as Akerlof and Kranton(2010), Costa-Font and Cowell (2015), Lane (2016), Pechar and Kranton (2018),Charness and Chen (2019), and Shayo (2019).

Naturally existing social identities that have been investigated largely overlapwith those featured in the labor market discrimination literature. They include gender(e.g., Charness and Rustichini 2011; Coffman et al. 2018), race and ethnicity (e.g.,Fershtman and Gneezy 2001; Fong and Luttmer 2009; Mobius et al. 2016), caste(Banerjee et al. 2018), religion (e.g., Chuah et al. 2016; Chakravarty et al. 2016,2019), tribal groups or villages (Bernhard et al. 2006; Dugar and Shahriar 2012),migrant status (e.g., Kato and Shu 2016), nationality (e.g., Stoddard and Leibbrandt2014; Felfe et al. 2018), political identity (e.g., Dhami et al. 2018; Hernandez-Lagosand Minor 2018), and organizational identity (e.g., Goette et al. 2006; Brandts andSolà 2010; Attanasi et al. 2016). In the studies that focus on college student samples,natural identities investigated also include university identity (e.g., Chen et al. 2014;Cadsby et al. 2016), college majors (Klor and Shayo 2010), and fraternities andsororities (Solow and Kirkwood 2002).

To make a natural identity salient, a technique called priming is sometimes usedto introduce certain stimuli – “primes” (e.g., text, image, audio, etc.) – to exoge-nously and temporarily activate one’s social knowledge structures associated withcertain identity (Bargh 2006). Economic experiments show that some identities (e.g.,ethnic identity, organizational identity, and political identity), when primed, lead tointergroup bias in decisions such as cooperation and coordination (Chen et al. 2014)and ultimatum bargaining (McLeish and Oxoby 2011; Dhami et al. 2018).

The other approach to study identity is to induce artificial group identity in thelaboratory. This method originates from the minimal group paradigm in socialpsychology, in which subjects are (made to believe that they are) categorized intogroups based on some trivial criteria (for instance, their estimates of dots in a displayor art preferences for paintings by Kandinsky and Klee) although they are random-ized into groups in actuality (Tajfel et al. 1971). Building on 15 years of minimalgroup research, Tajfel and Turner (1986) conclude that this trivial, ad hoc intergroupcategorization leads to ingroup favoritism and outgroup discrimination in minimal

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group settings that involve random group assignment with anonymous membership,no social interactions, and no calculation of the decision-maker’s self-interest.

Numerous economic experiments on group identity have built upon and extendedthe minimal group paradigm. As economic decisions often involve trade-offsbetween one’s own and others’ payoffs unaccounted for in the traditional minimalgroup paradigm, these studies show that the extent to which induced identity affectsbehavior depends on the identity salience and the nature of tasks. First, evidenceshows that minimal groups without further enhancement may lead to group bias innonstrategic economic settings (e.g., “NoHelp” treatment in Chen and Li 2009;Kranton and Sanders 2017; Kranton et al. 2018). Second, minimal groups areinsufficient to affect decisions in strategic settings, which include public goodsgames (e.g., Eckel and Grossman 2005), prisoner’s dilemma (e.g., Charness et al.2007; Goette et al. 2012a; Guala et al. 2013), battle of the sexes (e.g., Charness et al.2007), and group contest (e.g., Chowdhury et al. 2016). Third, salience of groupcategorization and group status and relevance of intergroup comparisons are foundto be important determinants of ingroup bias (Mullen et al. 1992). Furthermore, thefactors identified as effective in creating salient group identity in strategic settingsgenerally belong to two broad categories: joint experiences and common fate. Somewidely used designs to create joint experiences include communication (e.g., Chenand Li 2009; Chen and Chen 2011; Masella et al. 2014; Cason et al. 2012, 2017;Casoria et al., ▶Behavioral Aspects of Communication in Organizations), face-to-face interaction (e.g., Eckel and Grossman 2005; Charness et al. 2007; Charness andRustichini 2011; Pan and Houser 2013, 2019), and intergroup competition (e.g.,Eckel and Grossman 2005; Chen et al. 2017; Charness and Holder 2018). Commonfate (e.g., payoff dependence) may also create salient group identity, as reported inCharness et al. (2007), Hogg and Abrams (2007), and Sutter (2009). Besedeš et al.(2014), however, show that unless being used jointly with communication, payoffdependence alone may be insufficient to induce salient group membership to influ-ence decisions in multistate choice tasks.

In sum, research into the respective identities of naturally existing and artificiallyinduced groups frames two complementary aspects of the literature on group biasand discrimination. In terms of the methodological pros and cons, evidence onnaturally existing identities can be readily applied to understand relevant real-world problems. The lack of the experimental control over the formation processesof natural identities, however, may restrain researchers from further exploring thereasons behind their findings, and generally, knowledge on how one type of socialidentity works may not be generalizable to other types of identities. In sharp contrast,investigations on artificially induced group identities are characterized byresearchers’ tight laboratorial control over the identity formation process. Thecontrol heightens researchers’ capacity to glean insights regarding the specificways in which independently manipulated factors can create salient group identityand affect discriminatory decision-making. Furthermore, with control, some suchinsights may apply more broadly beyond specific identity categories. The maincritique of the induced approach pertains to its external validity – the discourse ofwhich later follows in the Summary.


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Other-Regarding Preferences

A vast volume of experimental studies has shown that individuals often careabout others’ pecuniary payoffs in addition to their own payoffs and exhibit other-regarding (or social) preferences (see the pioneering work of Fehr and Schmidt(1999) and of Bolton and Ockenfels (2000), as well as recent surveys by Cooperand Kagel (2016) and Nosenzo and Goerges, “▶Social Preferences, Pro-socialityand Social Norms”). The formulation of other-regarding preferences in laboratoryexperiments and the development of related theories have broad implications for thefield of labor economics, especially within analysis of principal-agent and agent-agent interactions. This section summarizes main findings on how group identityinfluences other-regarding preferences and how the impact manifests itself asingroup favoritism and/or outgroup discrimination in some simple, stylized games.The wealth of findings serves to demarcate the critical underpinnings of labor marketdiscrimination.

Distributional Preferences

Other-regarding preferences can be distribution based when individuals are moti-vated by the comparison between one’s own and others’ respective payoffs. Inequal-ity aversion, which refers to individuals’ dislike and subsequent action to reduceincome gaps between themselves and others, is arguably the most frequently studieddistributional preference. As reviewed in both Costa-Font and Cowell (2015) andPechar and Kranton (2018), the influence of group identity on inequality aversion isgenerally studied in nonstrategic settings such as the dictator game or its variants.In these games, the decision-maker has full discretion in allocating payoffs betweenself and a passive ingroup or outgroup receiver, and the passive receiver has nostrategic role. The allocation decisions, therefore, are immune of any strategicconcerns, and any intergroup discrimination observed in these settings can serveas clean evidence for taste-based discrimination. As will be discussed in thissubsection, this literature on group identity and distributional preferences revealsthat people on average exhibit ingroup favoritism and/or outgroup discriminationwith a large degree of heterogeneity across individuals; it also documents non-negligible null findings.

Chen and Li (2009) incorporate social identity into the other-regarding prefer-ences model. In their experiment, participants are categorized based on theirart preferences, and group cohesiveness is further strengthened through groupproblem-solving (which involves intragroup communication) and other-othertoken allocation. They find that on average participants show a 47% increase intheir charity concerns (advantageous-inequality aversion) and a 93% decreasein envy (disadvantageous-inequality aversion) if paired with ingroup rather thanwith outgroup co-players. A number of studies report evidence consistent with Chenand Li (2009). For example, Kolstad and Wiig’s (2013) dictator game experimentshows that microcredit clients in Angola allocate more to ingroup recipients who

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belong to their own credit group than to outsiders. Kranton et al. (2018) discover thatcollege students on average are more inequity averse toward ingroup than outgroupin both the minimal groups and political groups settings. Furthermore, outgroupdiscrimination is also found in a series of allocation games, for instance, among thepoorest and less educated whites against Muslims in England (Grosskopf and Pearce2017) and amongMuslims and Hindus against each other in India (Chakravarty et al.2019). In a dictator game experiment featuring a nationally representative sample ofthe US adult population, Fong and Luttmer (2009) present some evidence of racialbiased giving to natural disaster victims. More importantly, they show that self-identification with one’s racial group, rather than objective race, is an importantdeterminant of this bias. All these findings can be explained by group-contingentdistributional preferences.

Intergroup discrimination in distributional preferences is also observed in chil-dren. Friesen et al. (2012) show, via a dictator game of allocating stickers, thatCaucasian children in Canada are more altruistic toward other Caucasian recipientsthan to East and South Asian groups, with minority East Asian children exhibiting aconverse bias (outgroup favoritism) toward the other two ethnic categories. Fehret al. (2013) find that ingroup favoritism and outgroup discrimination emerge withincreased socialization amid adolescence. Angerer et al. (2017) reveal that taste-based discrimination may evolve among preschool children in Italy.

Some studies reveal certain subtleties of intergroup discrimination found indistributional preferences, showing it, for instance, to vary across different identitytypes (e.g., Ravetti et al. 2019) and social and economic environments (e.g., Aksoyand Palma 2019). In a meta-analysis of minimal group studies from 1970 to 2015,Pechar and Kranton (2018) summarize that norm priming and group identity salienceare important drivers of intergroup discrimination in the single stance, pure alloca-tion experiments with the minimal groups. They also discover inconsistent evidenceregarding the effects of economic and social factors.

Intergroup discrimination in distributional preferences also exhibits a large degreeof heterogeneity on the individual level. Kranton et al. (2018) emphasize thatalthough participants are on average more inequity averse toward ingroup thanoutgroup, they exhibit robust heterogeneous patterns in choices and can be largelycategorized into “groupy” and “non-groupy” types. The groupy type adopts differentother-regarding preferences toward the ingroup and outgroup and even engages indestructive behavior by lowering the outgroup’s income at one’s own cost. Thenon-groupy type reveals the same other-regarding preferences for ingroup andoutgroup and is less likely to be affiliated with a political party. High degrees ofindividual heterogeneity in such group bias and correlation with group-orientedbehavior such as participation in political parties are similarly observed in Krantonand Sanders (2017), Muller (2019), and Robalo et al. (2017).

Apart from altruism or inequality aversion, people may exhibit competitivepreferences and prefer to fare as well as possible relative to others (see Charnessand Rabin (2002) for discussions on how competitive preferences and inequalityaversion are captured differently in the utility function). A small subset ofthe literature provides contradictory evidence on group identity and competitivepreferences. Kato and Shu (2016) report that local and rural migrant workers in


urban Chinese firms compete aggressively with coworkers of a different socialidentity yet not with those of the same ilk. Cornaglia et al. (2019) find the opposite –subjects are between 67% and 80% more likely to choose tournament over piece ratepay when they are paired with an ingroup member than with an outgroup member orin the baseline with no induced groups. Similarly, in an artefactual field experiment,Madiès et al. (2013) find senior employees in a Swiss bank to be more likely tocompete against their ingroup than outgroup (i.e., junior employees) when facinglow market capacity, although group identity in terms of an employee’s seniority hasan overall limited impact on competition.

Reciprocal Preferences

Other-regarding preferences may be intention based. People may exhibit positive(or negative) reciprocity and act to increase (or decrease) others’ payoffs dependingon how fairly others behave. Reciprocal preferences are extensively studied ingames in which strategic concerns have an important bearing on decision-making.Examples include ultimatum bargaining games and two-person sequential movegames in Charness and Rabin (2002) that are designed to tease out different typesof other-regarding preferences. In these games, the first mover’s decision is affectedby her distributional preferences and/or her beliefs of how the second moverinterprets and reacts to the intentions behind her decision. Thus, the impact ofgroup identity on these strategic decisions, combined with belief elicitation ordecisions in allocation games, can be used to infer statistical discrimination (e.g.,Fershtman and Gneezy 2001).

Chen and Li (2009) report ingroup favoritism in both positive and negativereciprocity in two-person sequential games. They find that participants are 19%more likely to exhibit positive reciprocity for good behavior and 13% less likelyto exhibit negative reciprocity for misbehavior (i.e., showing more forgiveness)when matched with an ingroup rather than an outgroup co-player. Similarly,Currarini and Mengel (2016) find evidence for strong ingroup favoritism in positiveand negative reciprocity among members of randomly assigned groups whoare exogenously matched in two-player sequential move games. When subjectscan choose their co-players, however, they exhibit strong homophily (i.e., preferenceto interact with others similar), alongside reduced or negligible ingroup favoritismin their social preferences. Similar results on homophily and ingroup favoritism aredocumented in Aksoy’s (2015) public goods experiment. Dhami et al. (2018) findthat registered members of British political parties exhibit ingroup favoritism in bothproposer and responder roles in an ultimatum game. The proposers’ offers arehigher, and the responders’ minimum acceptable offers are lower (thus showingweaker negative reciprocity and more forgiveness) to ingroup co-players from thesame political party than to outgroup co-players from a different political party.

The group identity effect on reciprocity does not manifest itself uniformly asingroup favoritism and/or outgroup discrimination, however. For example, Ferraro

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and Cummings (2007) show that Navajo Indians and Hispanic Americans in NewMexico behave differently in their intercultural interactions in an ultimatumbargaining game, and their behavior is susceptible to the ethnic composition of theexperimental sessions. A few studies find stronger negative reciprocity to ingroupthan outgroup, a finding contrary to ingroup favoritism discussed above. In anotherultimatum bargaining experiment, McLeish and Oxoby (2011) find that althoughproposers exhibit ingroup favoritism in their offers, responders demand higherminimum acceptable offers in the shared-identity-priming treatment than inthe distinct-identity-priming treatment, indicating a stronger negative reciprocitytoward ingroup. In experiments conducted before, during, and after the 2006Israel-Hezbollah war, Gneezy and Fessler (2012) show that, during wartime, peopleexhibit more (costly) negative reciprocity toward noncooperative group members inan ultimatum game and more positive reciprocity toward cooperative group mem-bers in a trust game. Their findings imply that violent intergroup conflict enhanceswithin-group cooperation through sanctioning noncooperators and rewarding coop-erators, thereby rendering their group victory more likely.

Several studies fail to find any impact of group identity on other-regardingpreferences (e.g., Johnson and Oxoby 2015; Eriksson et al. 2017). In Johnson andOxoby’s (2015) ultimatum game experiment, for instance, no differences are foundin the offers and responses between the ingroup and outgroup interactions, althoughmany proposers are found to be willing to pay to interact with ingroup respondersand report higher levels of happiness when doing so. Their study indicates thatingroup favoritism may take place on the extensive margin rather than on theintensive margin.

Gift Exchange Relationships

Although social identity has long been considered essential to the employee-orga-nization relationship in psychology and sociology, it was not formally introducedinto economic models as an important source of motivation until Akerlof andKranton (2005). They incorporate social identity as behavioral norms intoprincipal-agent models and show the important interactions between identity andincentives. Since then, experimental economics studies have documented that prin-cipals (employers) and/or agents (employees) show ingroup biases which may leadto more efficient outcome within groups.

Dugar and Shahriar (2012) find that efficient outcome takes place more frequentlyin a moral hazard setting between the principal and agent from the same village thanbetween those from different villages in India. Morita and Servátka (2013) reportthat a shared group identity may help mitigate the holdup problem by inducingagents to make ex ante efficient relation-specific investments. In two studiesconducted in China, Mobius et al. (2016) find that in an experimental labor market,ethnic minority workers are discriminated against by employers and receive lowerwages than the ethnic majority Chinese Han workers, while Chmura et al. (2016)


show that the employer-tasked participants offer higher wages to their employeecounterparts of the same province origin, with no ingroup bias found in employeeeffort. Dickinson et al. (2018) demonstrate ingroup bias to be rational and beneficialto employers in revealing employees to reciprocate ingroup employers with highereffort in a lab labor market. Unemployed outgroup workers, however, react to thisbias negatively by burning resources at their own cost. Jiang and Li (2019) reportthat the principals offer a greater share of revenue to the ingroup agents who, despitebeing less tolerant of low offers, exert greater effort than their outgroup counterpartsin response to more generous offers from the principals.

Coffman et al. (2018) use a lab experiment to disentangle the motivations ofgender discrimination against women. They find that women are less likely to behired compared to equally able men for a male-typed task. This discrimination is notgender-specific, however. Using a novel baseline, the authors discover similardegrees of discrimination against the lower-performing group no matter they areidentified by their gender category (female) or by their birth month (even month).These findings point to the saliency of employees’ performance to employers’beliefs and thus in explaining discriminatory hiring decisions.

Two recent studies explore whether and how such discrimination documentedin lab labor market research can be mitigated. Daskalova (2018) finds that partic-ipants of artificially induced groups make discriminatory decisions on whom toassign a project of uncertain outcome. Interestingly, such discriminatory decisionsare driven by outgroup discrimination in the individual setting. In the collectivesetting, however, co-decision-makers from the same group show strong ingroupfavoritism toward their ingroup candidates, whereas co-decision-makers fromdifferent groups show no biases. This study indicates that beliefs aboutco-decision-makers’ behavior and about what is considered acceptable mayaccount for intergroup discrimination, and thus promoting diversity of thedecision-making team may help alleviate such discrimination in collective settings.Duell and Landa (2018) further investigate whether a series of interventions –offering principals better information on agents’ effort, obscuring principals’identity, and letting principals announce a nonbinding, identity-neutral rewardrule prior to agents’ choices of effort – can mitigate discrimination in theprincipal-agent relationship with moral hazard. They find that although theseinterventions all possess varying degrees of capacity to alleviate the principals’discriminatory actions and beliefs, they nonetheless fail to decrease – and mayeven increase – the agents’ expectations of the principals’ bias, exacerbating theirown bias in turn.

Ingroup bias may not always lead to positive principal-agent relations andefficient outcomes within groups, however. Both Masella et al. (2014) and Rienerand Wiederhold (2016) demonstrate that the presence of a control mechanism by theprincipal can crowd out the agent’s effort and become detrimental within (induced)groups since the ingroup agent does not expect to be controlled and hence reactsnegatively.

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Trust and Trustworthiness

Gift exchange between the principal and agents can also be captured via trust andreciprocity in the trust (or investment) game (Berg et al. 1995). In this game, thesender and the responder are each given an endowment. The sender can send theresponder any amount between zero and her entire endowment (both inclusive),which will then be multiplied by the experimenters. The responder then decides howmuch, out of the multiplied amount, to return to the sender. The degree of trust andreciprocity (or trustworthiness) is measured by the amount sent and returned,respectively.

Among the early trust game investigations into how group identity influencestrust and trustworthiness, Burnham et al. (2000) observe that subjects’ trustworthi-ness is susceptible to subtle cues such as framing the co-player as the “partner” or“opponent.” Glaeser et al. (2000) find more trust and trustworthiness among peoplewho are socially closer and less trustworthiness among people of different races ornationalities.

Subsequent studies reveal mixed findings, in which the patterns of ingroupfavoritism or outgroup discrimination in trust and/or trustworthiness vary largelyby the types of identities and economic settings. Hargreaves Heap and Zizzo (2009)show that randomly assigned color groups – a minimal group inducement – do notinfluence ingroup instillation of trust but result in outgroup discrimination in trust.In rural Cameroon, villagers are found to be more trusting of fellow villagers fromtheir own villages than of those from other villages (Etang et al. 2011). Falk andZehnder (2013) report that residents in Zurich show more ingroup trust towardstrangers from their own residential district than toward those from other districts,partially due to more accurate beliefs about the anticipated return by the ingroup.Chuah et al. (2013) also report intergroup bias in trust, although not in trustworthi-ness, between urban Muslims and Hindus in India. Chuah et al. (2016) furthershow that inter-religious-group trust and trustworthiness are influenced not only byreligious affiliations but also by the strength of one’s religious attachment in China,Malaysia, and the UK. Burns (2012) discovers that black and nonblack proposersexhibit distrust of different patterns toward black partners among high schoolstudents in South Africa, partially due to mistaken expectations. Hernandez-Lagosand Minor (2018) report that both Democrats’ and Republicans’ beliefs are pessi-mistic about others’ trustworthiness, that Democrats (Republicans) show more (less)ingroup bias, and that new information on their partners’ historical trustworthinesshelps correct Democrats’ but not Republicans’ misbeliefs. In addition to religious,racial/ethnic, and political identities, organizational identity also influences trust andtrustworthiness (Brandts and Solà 2010; Fehrler and Kosfeld 2013).

Intergroup differences on trust and trustworthiness depend on a broad range offactors that include informal institution (Meier et al. 2016), culture (Fershtman et al.2005; Degli Antoni and Grimalda 2016), the group formation process (Pan andHouser 2013), the opportunity to punish defective behavior (Pan and Houser 2019),mobility, and status (Tsutsui and Zizzo 2014; Suchon and Villeval 2019). Some


studies find no differences in intergroup trust and trustworthiness (e.g., Fershtmanand Gneezy 2001; Güth et al. 2008; Birkeland et al. 2014).

Cooperation and Coordination

Employee discrimination is an important form of discrimination within workplacesettings. It has remained untested despite the vast literature of labor market discrim-ination, however, due to the lack of accessible relevant data such as workforcecomposition (Neumark 2018, p. 831). Notwithstanding such challenges, laboratoryexperiments provide unique opportunities for researchers to investigate potentialdiscrimination in strategic interactions, e.g., cooperation and coordination, amongemployees in simulated work environments such as dyads (e.g., prisoner’s dilemmaand two-player coordination games) and teams (e.g., public good provision andmultiple-player coordination games). In a meta-analysis of studies in economics andpsychology from 1965 to 2013, Balliet et al. (2014) find evidence of a small tomedium size of ingroup favoritism in cooperation in social dilemma and prosocialbehavior, driven primarily by ingroup favoritism rather than outgroup hostilities.

Prisoner’s Dilemma

The prisoner’s dilemma game is frequently used in experimental economics to gaugeplayers’ willingness to cooperate in situations in which the dominant strategy is todefect. A number of studies provide evidence that a shared group identity mayincrease cooperation in such contexts but characterize the extent of this impact asdependent on the salience or the nature of the groups. For example, Charness et al.(2007) find no impact of minimal groups on decisions in prisoner’s dilemma. Whengroup membership is made more salient by allowing the presence of one’s owngroup as a passive audience, however, the decision-maker makes choices that favorthe audience (ingroup) if the outcome of the play is revealed immediately. When thegroup is made salient by introducing payoff dependence between the decision-makerand his/her group, more cooperation is found toward ingroup than outgroup. Theresearchers explain the effects of the design features – audience and payoff depen-dence – as signals to the subjects on the existence of the group structure.

The impact of group identity on cooperation depends on the nature of the groups.In a simultaneous prisoner’s dilemma game conducted in the Swiss Army, Goetteet al. (2006) find ingroup favoritism and outgroup discrimination in cooperationamong members of randomly assigned natural groups with social ties, which can befully explained by subjects’ beliefs. In contrast, Goette et al. (2012a) find onlyqualitatively higher, albeit statistically insignificant, cooperation and expected coop-eration for the ingroup than the outgroup in the randomly assigned minimal groups.They further show that incorporating social ties into the minimal groups leads tohigher levels of actual and expected cooperation among ingroup members but doesnot affect one’s beliefs about and behavior in relation to outgroup members.

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Similar to Goette et al. (2006), Angerer et al. (2016) find ingroup favoritism andoutgroup discrimination in the prisoner’s dilemma, due to both taste and beliefs,among different language groups of 6- to 11-year-old primary school children in abilingual city in Northern Italy. Goerg et al. (2016) show lower cooperation inoutgroup interactions between Israeli and Palestinian students due to both lowerbeliefs of cooperation and lower willingness to do so; Aksoy (2015) finds lowercooperation between experimentally induced lab groups through the impact onother-regarding preferences. Hargreaves Heap and Varoufakis (2002) demonstratethat a discriminatory convention, which evolves due to asymmetric payoffs assignedto two randomly categorized color groups, can subsequently affect cooperationamong group members.

To distinguish two main motives – ingroup love and outgroup hate – in intergroupconflict, Halevy et al. (2012) find that choices indicative of ingroup love occur morefrequently than choices based on outgroup hate in a repeated intergroup prisoner’sdilemma (IPD) game. In another study featuring IPD, Weisel and Zultan (2016)demonstrate that a threat posed by the outgroup to one’s own group, rather than themotive to harm the outgroup, fosters ingroup cooperation out of a concern for socialwelfare.

Chuah et al. (2014) manipulate the information revealed about co-players’religious and ethnic identities in a repeated prisoner’s dilemma experimentconducted in Malaysia. They find ingroup favoritism but not outgroup discrimina-tion. Relative to the baseline where co-players’ ethnic and religious affiliations areboth concealed, participants cooperate more with those who share either identity, butthey do not cooperate less with those who share neither identities.

A small stream of literature examines possible measures to increase intergroupcooperation, finding common organizational identity prime (Chen et al. 2014),successful prior intergroup interaction (Cason et al. 2019), and face-to-face commu-nication (Goerg et al. 2016) to be potentially effective.

Li and Liu (2019) extend this stream of research from one-shot or finitelyrepeated settings to the indefinitely repeated setting and find that group identityinfluences not only individual choices of actions but also repeated game strategiesthrough both preferences and beliefs.

Public Goods Provision

In experimental economics, the public goods game with the voluntary contributionmechanism (see the review by Kocher et al., “▶Team Decision-Making”) is oftenused to simulate team production. Similar to the findings of prisoner’s dilemmaexperiments, intergroup bias with regard to cooperation is also observed despite theprivate incentive to free ride. In a repeated public goods experiment with inducedidentity, Weng and Carlsson (2015) show that a strong group identity leads to morecooperation in both homogenous- and heterogeneous-endowment groups, but thedegree of the impact depends on the strength of the identity. Other experimentalstudies, with some exceptions (e.g., Hermes et al. 2019), often find a higher level of


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(conditional) cooperation with ingroup than outgroup members (e.g., Ruffle andSosis 2006); cooperation is generally higher in homogeneous groups relative toheterogeneous ones (e.g., Chakravarty and Fonseca 2014; Aksoy 2015), with asym-metric responses by different groups found in some studies (Charness and Villeval2009; Carpenter and Cardenas 2011).

Another notable finding among this literature is that group identity enhancedthrough intergroup competition creates stronger motivations for individuals to actprosocially within groups. Eckel and Grossman (2005), for instance, show thattournament-based incentive mechanisms may improve intra-team cooperation,albeit temporarily, in a repeated public goods game framed as a team production.The efficacy of intergroup competition in boosting intragroup cooperation is alsodocumented in numerous other studies such as Guillen et al. (2014), Chen et al.(2017), and Charness and Holder (2018).

One interesting question concerns how the presence of a leader or a new memberinfluences cooperation. Several studies show that incumbent members’ contributionsto the public good depend on the leader’s or newcomer’s group identity, the leader’sselection process, and heterogeneity of the group (Drouvelis and Nosenzo 2013;Ibanez and Schaffland 2018; Grund et al. 2018). These studies imply that the impactof identity in enhancing within-group cooperation can be fragile in social dilemmas.

Coordination

Group performance sometimes hinges upon group members’ capacity to coordinatewith each other in the workplace. Coordination failure among coworkers may causegroups to become trapped in poor performances. Coordination games (e.g., battle ofthe sexes, stag hunt, weak-link games, etc.) and the impact of group identity in thesecontexts are used to examine both potential intergroup discrimination amongemployees and the ramifications for group performances, about which the labormarket discrimination literature is largely silent.

Charness et al. (2007) find no impact of minimal groups on behavior in battle ofthe sexes. When group membership is made more salient by allowing one’s owngroup to observe the decision-making process as a passive audience, however, thedecision-maker tends to make choices that favor the audience (ingroup), whether theoutcome of play is revealed immediately or not. These results again imply that instrategic environments, the impact of group membership on individuals’ choicesis contingent upon the saliency of the groups. As discussed in Subsection “PublicGoods Provision,” groups can also be made salient through intergroup competition.Bornstein et al. (2002) report that intergroup competition increases collective effi-ciency in the minimum-effort coordination game (Van Huyck et al. 1990) comparedto when a single group plays the game independently.

Chen and Chen (2011) introduce a group-contingent social preference model toderive conditions under which group identity can change equilibrium selection in aclass of potential games with multiple Pareto-ranked equilibria. In results consistentwith their theory, they show that when an artificially induced common group identity

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is made salient, learning leads to better ingroup coordination to the efficient high-effort equilibrium in a minimum-effort coordination game under the parameterconfigurations which would otherwise result in an inefficient low-effort equilibriumwith no group identity. Chen et al. (2014) report that when their distinct ethnicidentities are primed, college students are less likely to choose high efforts ifmatched with those from the different ethnic group at their university, leading toless efficient coordination in the minimum-effort games, compared to the baselinewith no identity prime. Several other studies show that some naturally existingcommon identities, when made salient, lead to more coordination, e.g., nationalityin stag-hunt coordination games (Stoddard and Leibbrandt 2014) and sports team,sports club, or university identity in asymmetric battle of the sexes (Attanasi et al.2016).

Norm Enforcement and Punishment

To uphold the cooperative norm of a workgroup or organization, punitive measuresare sometimes needed. One important stream of literature on group identity involvesinvestigations of its impact on norm enforcement punishment (or altruistic punish-ment), which refers to costly punishment of violators of certain social normsimposed by peers (Fehr and Gächter 2002) or private third parties (Fehr andFischbacher 2004) with no direct benefits to the punishers.

Peer punishment is found to be an effective mechanism to deter free-riding andenhance cooperation in social dilemmas such as public goods games (Fehr andGächter 2002; also see the survey by Chaudhuri 2011). Existing evidence on theimpact of group identity on peer punishment, however, is rather mixed. Some studiesdocument more severe punishment toward outgroup and more leniency towardingroup (Mussweiler and Ockenfels 2013; Bicskei et al. 2016), whereas other studiesfind more punishment toward ingroup members (Li and Yang 2019) or no groupdifference in peer punishment at all (Weng and Carlsson 2015). Paetzel andSausgruber (2018) show that group differences in norm-enforcing punishmentdepend on one’s cognitive ability. Regarding the impact of punishment on the overalleconomic outcome, Li and Yang (2019) report that peer punishment leads to morecooperative behavior and higher economic efficiency in a community characterizedby heterogeneous groups than those homogeneous.

Norm enforcement punishment can also be imposed by private third parties whoare not economically affected by the involved norm violation. Studies in thisliterature are built on Fehr and Fischbacher (2004). The general finding on theimpact of group identity is that the third-party punishers exhibit strong altruismtoward ingroup victims, and they are more willing to punish norm violators if thevictims belong to the punishers’ ingroup (Bernhard et al. 2006; Goette et al. 2006).Bernhard et al. (2006) also find that punishers treat ingroup perpetrators moreleniently than outgroup ones, but Goette et al. (2006) fail to find such difference inpunishing ingroup and outgroup defectors.

A few studies examine possible behavioral factors (e.g., group-dependent norms)and the biological correlates involved in intergroup discrimination in altruistic third-


party punishment. Harris et al. (2015) find that in a two-stage dictator game featuringthird-party punishment, punishers apply group-dependent and self-serving socialnorms in punishment decisions, and the degree of intergroup discrimination ofdictators is affected by who (ingroup or outgroup) holds the power to punish. Moreseet al. (2016) explore the links between the behavioral and neural correlates ofingroup favoritism by Chinese and Italian men in a dictator game featuring third-party altruistic punishment. Their neuroimaging reveals increased activity in thepunishers’ brain regions involved in the punishers’ attempts to understand or justifythe ingroup – but not the outgroup – dictators’ norm-violating behavior (i.e., themedial prefrontal cortex and temporoparietal junction).

Contest

Besides cooperation and coordination, strategic interactions among employees maytake the form of intergroup rivalry in the workplace. This section summarizes theliterature that investigates how group identity affects individuals’ propensity toengage in intergroup conflict. Much of this literature builds on the commonly usedTullock contest game (Tullock 1980) in which two parties are generally found toover-invest above the risk-neutral Nash equilibrium in a wasteful competition over apredetermined, fixed prize (see a review by Dechenaux et al. 2015 and Sheremata,“▶Tournaments and Competition”).

Abbink et al. (2010) report substantially higher conflict expenditures when rivalparties are groups rather than individuals. Abbink et al. (2012) observe over-contributions in an intergroup conflict game preceded by prisoner’s dilemma,a conflict over-expenditure they attribute to ingroup altruism and outgroup hostility.In a group contest experiment that consists of East Asian and Caucasian subjects,Chowdhury et al. (2016) find decreased within-group free-riding and increased effortin group contest in the racial identity treatment – but not in the artificial minimalidentity treatment – relative to the baseline with no identity. Chakravarty et al. (2016)report a small but statistically significant impact of social identity among Hinduvillagers, yet none among Muslim villagers, in two-player group contest games.

Differing from the studies above that focus on group members’ identity asa single-dimensional factor in motivating effort in contests, a series of other studiesexamine its interplay with other factors such as the authority’s group identity(Filippin and Guala 2013), division of the gains among group members (Ke et al.2013), personal values, organizational culture, incentives (Andersson et al. 2016),social distance (Mago et al. 2016), and communication (Cason et al. 2012, 2017).

“Dark Side” of Group Identity and Group Bias

Although many studies have shown the efficacy of ingroup favoritism in improvingcooperation and coordination, an increasing array of studies have documented itsdetrimental impact in various domains. This stream of literature provides a more

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balanced and comprehensive perspective to understand the roles of group identity indecision-making.

Cooperation in social dilemmas and altruistic punishment is considered as aprosocial act, but it may take the parochial form of hostility toward individualsthat belong to other groups (Choi and Bowles 2007). Intergroup bias that privilegesingroup members but discriminates against outgroup members may reduce overalllevel of cooperation and efficiency. Goette et al. (2012b) demonstrate that ingroupfavoritism in altruistic punishment may result in the development of a taste forharming the outgroup, especially in the presence of intergroup competition, andthereby lead to more severe punishment of outgroup members regardless of theirchoices. As a result, punishment ceases to enforce the cooperative norm, insteadused to advance the interest of the ingroup at the cost of the outgroup. In addition,Hargreaves Heap and Zizzo (2009) and Ioannou et al. (2015) find that in a trustgame, trustors transfer less to outgroup trustees but do not transfer more to ingrouptrustees, causing total welfare to decrease with group assignment than without. Thesestudies indicate that within-group efficiency and between-group conflict represent avital but often overlooked trade-off that organizations and policy makers needto face.

Group identity may influence individuals’ engagement in or tolerance of antiso-cial or unethical behavior (see a review on antisocial behavior at work byGangadharan et al., ▶ “Morality and Anti-social Behavior at Work”). Cadsby et al.(2016) find that students from two competitive Chinese universities are willing to lie,despite the lack of self-benefit, to increase the payoff of ingroup members from thesame university at the expense of outgroup members from another university.Banerjee et al. (2018) report that after losing competition under affirmative action,high caste members in India are willing to lie to reduce the payoffs of backward castemembers, even if the backward caste member is a new partner. Della Valle andPloner (2017) show that participants are more likely to use dishonest behavior torestore fairness against an outgroup perpetrator than an ingroup one. In contrast,Benistant and Villeval (2019) find no intergroup bias in lying. Other studies showthat the intergroup differences in antisocial behavior may be contingent on individ-ual characteristics, e.g., income (Gangadharan et al. 2019) and status (Jauernig et al.2016), or the surrounding economic and social conditions, e.g., harvest season(Aksoy and Palma 2019) and peers’ behavior (Bauer et al. 2018).

Ingroup bias may lead to ingroup-based conformity which increases the proba-bility of herding on the wrong decisions (Van Parys and Ash 2018) and over-confident beliefs about ingroup members’ ability (Cacault and Grieder 2019).Ingroup favoritism sometimes may also backfire or generate a negative spillovereffect in the workplace. Employees may react negatively and decrease their effort inresponse to the monitoring or control by ingroup employers (e.g., Masella et al.2014; Riener andWiederhold 2016). Unemployed outgroup participants may engagein increased resource destruction at one’s own cost when they attribute their unem-ployment to employers’ favoritism toward ingroup employees (Dickinson et al.2018).


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Underlying Mechanisms

As noted earlier, experimental economists often combine evidence of the groupidentity effects on decisions in nonstrategic and strategic games to make inferenceson taste- or belief-based discrimination. Evidence discussed in this chapter providessupport for both preference- and belief-based mechanisms.

Findings in a large part of this literature are consistent with the spirit ofpreference-based models (e.g., Akerlof and Kranton 2000, 2002, 2005; Shayo2009). Some examples include Chen and Li (2009), Klor and Shayo (2010),Aksoy (2015), Weisel and Zultan (2016), Grosskopf and Pearce (2017), Krantonand Sanders (2017), Muller (2019), Kranton et al. (2018), etc. Everett et al. (2015a)show that ingroup bias is primarily preference-based rather than driven by strategicconcerns, as participants are more willing to incur costs to help ingroup thanoutgroup members, regardless of whether their decisions are kept anonymous, orthey expect economic value in return for helping. Guala and Filippin (2016),however, demonstrate that the effect of group identity in distributive choices cannotbe captured by a well-behaved preference function, instead suggesting that groupidentity may trigger social norms or heuristics that facilitate decision-making.

On the other hand, a growing number of studies indicate that group identity may,at least partially, affect behavior through beliefs or expectations that economic agentshold about others’ inclinations or choices (also see Yamagishi and Kiyonari (2000)for this debate in social psychology). Guala et al. (2013) show that group identityincreases cooperation in a modified one-shot prisoner’s dilemma game only whenthere is common knowledge of group affiliation. With asymmetric knowledge ofgroup affiliation, fully informed participants do not cooperate more with the ingroupthan with the outgroup. Ockenfels andWerner (2014) find similar results in a dictatorgame. More evidence for the belief-based mechanism is found in Goetteet al. (2006), Falk and Zehnder (2013), Le Coq et al. (2015), Grimm et al. (2017),Coffman et al. (2018), and Hernandez-Lagos and Minor (2018).

Morell (2019) suggests that belief-based explanations may be incomplete.He finds that shared group identity induced and enhanced in the laboratory leadsto a stronger influence of the dictators’ second-order beliefs on giving in a dictatorgame, indicating ingroup favoritism in guilt aversion – a preference to fulfill others’expectations. Several other studies find that beliefs and preferences both channel theimpact of group identity in decision-making, e.g., Angerer et al. (2016), Goerg et al.(2016), and Li and Liu (2019). Extensive discussions on differentiating the roles ofpreferences and beliefs are offered in Everett et al. (2015b).

Endogenous Groups and Other Determinants

Although most studies focus on static and exogenously given group identity, anemerging strand of literature examines the endogenous and dynamic nature of groupidentity, an unexplored research area in labor market discrimination. Efferson et al.

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(2008) employ a coordination game to demonstrate how trivial groups, initiallycategorized by meaningless symbolic markers, evolve endogenously into culturalgroups that comprise individuals who share behavioral expectations and show strongingroup favoritism.

Since “choice of identity may be the most important ‘economic’ decision peoplemake” (Akerlof and Kranton 2000, p. 717), recent research examines how individ-uals choose their group identity and how this choice subsequently influences otherdecisions. For example, endogenous group formation leads to sustainably highercontributions in the public goods game (Charness et al. 2014), higher public goodcontributions in age-heterogeneous teams than age-homogenous ones in the field(Charness and Villeval 2009), as well as more contest effort and less free-riding incontests (Herbst et al. 2015).

Evidence on individuals’ choices of identities also extends to real natural identi-ties. For example, Chiang et al. (2019) report that economic integration betweenMainland China and Taiwan has resulted in more people in Taiwan self-identifyingas Taiwanese rather than Chinese, a choice that consequently affects their prefer-ences over political parties. Grote et al. (2019) find that in a field experiment, newlyarrived refugees in Germany increase their investment in learning German whenexposed to a nudge indicating that such an investment would increase their sense ofbelonging to the host country.

Many identities (e.g., organizational identity, immigrant identity, and even ethnicidentity) are fluid rather than static. Their roles in decision-making are affected bysocial, economic, and political factors. For example, Montmarquette et al. (2004)find that corporate mergers impact how managers from different companies cooper-ate. Felfe et al. (2018) report that Germany’s reform of birthright citizenship in 2000led to a decrease in young immigrants’ bias against natives. Blouin and Mukand(2019) show how people’s ethnic identities can be affected by government propa-ganda in Rwanda. Bauer et al. (2014) demonstrate that greater exposure to warresults in a lasting increase in individual egalitarian motivations toward ingroup, butnot outgroups, by people between middle childhood and early adulthood. Exposureto other cultures or contact with other groups may mitigate intergroup bias (Cameronet al. 2015; Goerg et al. 2016) or result in heterogeneous responses (Gu et al. 2019).

Other factors that affect ingroup bias in choices include framing and the evokedsocial norms (Alt et al. 2018; Chang et al. 2019), stereotypes (Tanaka and Camerer2016), individual cognitive ability (Paetzel and Sausgruber 2018), education(Kolstad and Wiig 2013), age (Angerer et al. 2016), and gender (Fershtman andGneezy 2001; Solow and Kirkwood 2002; Croson et al. 2008; Charness andRustichini 2011; Chowdhury et al. 2016; Angerer et al. 2017). The effects of inducedgroup identity may also be influenced by the different relationship establishedamong subjects in the group induction process (Riener and Wiederhold 2013) orthe actions that subjects choose to undertake in the games (Smith and Bezrukova2013).


Summary

This chapter surveys the literature on group identity, ingroup favoritism, anddiscrimination and shows that group identity – whether artificially induced in thelab or naturally occurring – generally leads to ingroup favoritism and outgroupdiscrimination in various economic domains, with exceptions discussed in the text.Evidence on intergroup bias largely confirms the main findings in the labor marketdiscrimination literature based on race, ethnicity, religion, gender, immigrant status,and other factors. It also broadens this literature by offering new insights onemployer-employee interactions beyond the hiring stage as well as insights onemployee-employee interactions in cooperation, coordination, punishment, andcompetition. Moreover, experimental approaches allow researchers to better distin-guish different types of intergroup discrimination.

Despite rapid development, economics research on group identity is still in itsearly stage, with several areas worth noting as fruitful pathways for future research.First, although numerous studies have documented intergroup bias, a nontrivialnumber of studies report null or opposite results (also see Lane 2016). While theexisting studies expand economists’ understandings of group identity effects (or thelack of them) in isolated investigations, future research is needed to systematicallydifferentiate the circumstances under which group identity may and may not lead tointergroup discrimination and to thoroughly examine the underlying reasons.

Second, one main critique of the part of the literature that is based on inducedminimal groups pertains to the generalizability of the findings in these studies tonaturally occurring groups. Specifically, distinct patterns of intergroup bias arediscovered with randomly assigned minimal groups versus randomly assignedgroups with real social ties (Goette et al. 2012a). Moreover, evidence in somestudies (e.g., Fehrler and Kosfeld 2013; Chowdhury et al. 2016) supports Sen’s(2007) hypothesis that salient real social identity may lead to greater intergroupdiscrimination than induced minimal groups; other studies show that the opposite istrue (Lane 2016; Barr et al. 2018). These conflicting findings raise an importantmethodological question with regard to researchers’ design choices between realsocial groups and induced groups in studying intergroup discrimination. They alsocall for future research on the economic environments where these discrepancies arelikely to occur as well as for more investigations on the reasons and implications ofthese discrepancies.

Third, while experimental research offers new approaches to better differentiatethe taste and statistical discrimination, the challenge remains. A large part of currentresearch focuses on establishing the importance of each mechanism in specificsettings. Unified frameworks are needed to further disentangle their roles and tounderstand what environments or factors would render them relevant. Answers tothese questions will add to empirical foundations for theories of social identity andwill be important for enlightened policy making to address different types ofdiscrimination.

Last but not least, there is a paucity of literature on multidimensionality ofidentities (e.g., Chen et al. 2014; Ravetti et al. 2019). More research is needed to

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understand how and why different aspects of identities, when evoked, affect behaviorin distinct ways and lead to different economic outcomes. The insights will not onlyenrich theories on social identity but also provide valuable guidance for policymakers to design effective policy interventions to reduce discrimination in thelabor market.

Cross-References

▶Behavioral Aspects of Communication in Organizations▶Design and Analysis of Experiments▶Morality and Anti-social Behavior at Work▶ Social Preferences, Pro-sociality and Social Norms▶Team Decision-Making▶Tournaments and Competition

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