Better the devil you know: The effects of group identity uncertainty on coordination efficiency

Abstract

There is extensive evidence documenting the economic consequences of discrimination patterns between individuals belonging to the same or different group identities. However, many group identities rely on convictions and beliefs that are non-observable, and therefore, might be uncertain. This paper investigates the effects of group identity uncertainty on individual interaction preferences and willingness to coordinate. Results from a laboratory experiment using a weakest-link game with endogenous group formation show that group identity uncertainty and diversity differently affect individual interaction preferences. Interestingly, the negative discrimination against individuals with a different group identity weakens and vanishes faster than the negative discrimination against individuals whose group identity is not observable. Furthermore, most discrimination patterns vanish when interactions entail high and mutual economic incentives for individuals. The findings offer several managerial implications for deterring discrimination and increasing coordination efficiency in teams.