Abstract
This paper studies the ability of markets to alleviate taste-based discrimination in a laboratory experiment. We find that markets significantly reduce discrimination relative to individual choice situations with the same payoff structure and the same social group membership of the trading partner. We identify three main mechanisms behind this effect. First, the price of prejudice matters in both situations, but significantly more so in the market. Second, markets reduce identification with one’s social group. Third, markets diminish egalitarian preferences. Passive subjects correctly anticipate the main effect. We confirm the main treatment effect in an online experiment with natural groups.
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