Social categories and minimizing joint gains

Description

People prefer maximizing joint gains (e.g., self gets $600 / counterpart gets $800) instead of receiving lower amounts (e.g., self and other each get $500) in their transactions (Bazerman, Loewenstein & White, 1992). The present analysis, however, shows that the perceived value of such tradeoffs—the transaction utility (Thaler, 1985; 1999)—depends on whether the allocation occurs within a particular social category line (e.g., recipients are all Americans) or across social category lines (e.g., recipients are American and French). Studies 1 - 2 predicted and found that individuals tended to maximize such joint gains only when the allocation was within social category lines but not across them. Study 3 further showed that even outside observers, who were not members of the focal social categories, also had greater difficulty maximizing profit across social category lines. Finally, Study 4 showed that the transaction utility of maximizing joint gains required additional compensation across social category lines than it did within them. The results thus broach an ethical dilemma for managers: Is it appropriate to let mere social category lines interfere with profit maximization?

Subjects

Series Statement

• Working paper / Harvard Business School -- 06-033