Abstract

This paper is an experimental study on the effect of group identity on the formation of coalitions and the resulting distribution of resources, both in a one-shot and repeated game environment. After inducing group identity based on preferences over paintings, subjects play symmetric three-player ``divide the dollar’’ games with a majority rule decision process. The main finding is that where two players are from one group and one from the other, those in the minority earn significantly less than majority players. Although the size of this effect is similar in both one-shot and repeated games, the mechanisms involved differ: there is evidence only of costless types of discrimination in the one-shot context, whereas in the repeated game subjects engage in potentially costly discrimination. This is conjectured to occur because of the future gains that may be accrued by establishing a more stable long-term coalition.