Running Head: PROFIT VS. INEQUALITY
Maximizing Profit versus Minimizing Disadvantageous Inequality:
The Impact of Social Categories
Stephen M. Garcia
University of Michigan
Max H.Bazerman and Avishalom Tor
Harvard University
Dale T. Miller
Stanford University
Correspondence to:
Stephen M. Garcia
Ford School of Public Policy
University of Michigan
712 Oakland Annex, Rm 346
Ann Arbor, MI 48104-3032
Tel: 734.615.9680
Fax: 734.763.9181
E-mail: [email protected]
Profit vs. Inequality 2
Abstract
Research on the separate versus joint evaluation of payoff allocations (e.g., Bazerman,
Loewenstein, & White, 1992) has found that individuals prefer an equitable allocation between
themselves and another person (e.g. self - $500 / other - $500) to an alternative allocation where
they receive a higher absolute but disadvantageously unequal outcome (e.g. self - $600 / other $800) when these alternatives are evaluated separately. On the other hand, when evaluating these
alternatives jointly individuals show the opposite pattern, preferring profit maximization. This
paper argues, however, that the more rational preference for profit maximization in joint
evaluation is limited to those circumstances where the payoff recipients share a social identity.
When social identity differs between recipients, individuals no longer prefer profit maximization
under joint evaluation. Four experiments support the hypothesis that overlaying social categories
onto payoff recipients shifts preferences from profit maximization to equitable allocation, even
under joint evaluation. Implications for organizations, which are inevitably rife with different
social identities, are discussed.
Keywords: Preference Reversals, Decision Making, Social Categories
Profit vs. Inequality 3
After completing a Ph.D., you receive two offers from comparable
programs in very attractive locations. One of the jobs will pay you
$55,000, and also pays the department’s other new hire $55,000. The
other job pays you $60,000, but pays the other new hire $65,000. The
offers are not negotiable. Which job offer will you take? Does it matter
who the other hire is in each option? How does their social identity affect
your choice?
Most people prefer having more money to less. Most people are also concerned with
how well they are treated in comparison to others (Adams, 1963). Recognizing these concerns,
organizations typically use job grade systems to specify employee compensation so that
employees will believe they are being fairly compensated relative to others in comparable
positions. But how does social identity factor into our perceptions of fairness in payoff
allocations? Organizations naturally bring together persons with different social identities (e.g.,
Kanter, 1977). While gender and race are obvious bases of social identities, organizations also
harbor numerous other social identities such as departments (i.e., individuals from finance versus
accounting), alma maters (i.e., individuals from U.W. versus U.M.), state residences (i.e.,
individuals from California versus New York), and more. The present research explores how
these social identities shape our preferences for profit maximization.
Although people typically prefer more money to less, psychological research has
uncovered situations in which social comparison processes prevent individuals from maximizing
profit (e.g., Loewenstein, Thompson, & Bazerman, 1989). Originally, studies revealed that in
interpersonal situations, social comparison trumps profit maximization as individuals become
more concerned with relative outcomes, as opposed to absolute outcomes. Subsequent research
has revised this finding, however, underscoring the impact of joint versus separate evaluation on
profit maximization (e.g., Bazerman, Loewenstein, & White, 1992; Bazerman, White, &
Profit vs. Inequality 4
Loewenstein, 1995). These studies show that under separate evaluation individuals do not
maximize profit due to social comparison concerns. Under joint evaluation, when individuals can
systematically compare the alternative payoff allocations, their preference for profit
maximization overcomes the basic impact of social comparison.
The present study argues, however, that the profit maximization exhibited under joint
evaluation is limited to circumstances in which payoff recipients share a common social category
group. When payoffs are allocated to members of different social category groups, as is often
the case in organizational interactions (e.g., Hogg & Terry, 2000), individuals tend not to
maximize profit and instead choose a less lucrative but equitable allocation, even under joint
evaluation. In other words, when choosing between payoff allocations to recipients belonging to
different social groups, decision makers’ social comparison concerns are strong enough to
override their interest in maximizing their own payoffs. Under these circumstances, people
prefer equitable allocation to profit maximization even while making a well-informed joint
evaluation of the alternative allocations.
Joint versus Separate Evaluation of Payoff Allocations
Preferences for justice in allocations can be understood in terms of equity (Deutsch,
1975), equality (Deutsch, 1975), need (Deutsch, 1975), the status quo (Bazerman, 1985;
Kahneman, Knetsch, & Thayler, 1986), competitive justice (Lerner, 1977), and entitlement
(Crosby, 1976). More recent research, however, has offered a cognitive informational approach
to understanding allocation preferences (e.g., Bazerman, et al., 1992; Bazerman, et al., 1995),
revealing the impact of joint versus separate evaluation (for a review, see Hsee, Loewenstein,
Blount, & Bazerman, 1999). Separate evaluation pertains to situations where individuals rate the
attractiveness of an option by itself , without a reference point. Joint evaluation, on the other
Profit vs. Inequality 5
hand, pertains to situations where individuals evaluate two or more options simultaneously and
can therefore use the alternative options themselves as reference points for one another. We
review this research stream in this section.
Breaking new ground in research on social utility in interpersonal situations, Messick and
Sentis (1985) distinguished between nonsocial utility (i.e., payment to oneself in absolute profit)
and social utility (i.e., payment to oneself relative to the payment of another individual).
Building on this background, Loewenstein et al. (1989) found that individual social-utility
functions are non-linear and that the form of an individual’s utility function depends on a number
of factors, such as the quality of the relationship between the parties. Loewenstein et al. placed
subjects in a situation characterized by a strong equality norm and asked them to assess their
satisfaction with different monetary outcomes for themselves and for another person in a number
of fictional disputes. A social utility function for each subject was computed by regressing the
subject's satisfaction with each potential outcome against (1) the straight monetary value of that
outcome to the subject, and (2) the difference between the monetary value of the subject's
outcome and the other person's outcome. Interpersonal comparisons overwhelmed concern for
personal outcomes. For example, most individuals rated the outcome of $500 for oneself and
$500 for the other person as more satisfactory than the outcome of $600 for oneself and $800 for
the other person. Thus, they preferred equal outcomes in which they received less money to
unequal outcomes in which they received more. From a social benefit perspective, however, the
second outcome is actually the better one, because both parties would receive more money.
Researchers have begun to clarify the cognitive and informational variables that affect
this phenomenon by comparing situations of joint evaluation to situations of separate evaluation.
For example, Bazerman, Loewenstein, and White (1992) showed that individuals evaluating
Profit vs. Inequality 6
options separately perceived the option of making $500 for themselves while a counterpart
makes $500 to be more favorable than the option of making $600 for themselves while a
counterpart makes $800, a finding consistent with Loewenstein et. al (1989). However, when
individuals evaluated these two options together (i.e. under joint evaluation) they maximized
personal profit, choosing the $600-self / $800-other option over the $500-self / $500-other
option. Joint evaluation thus leads to profit maximization.
Blount and Bazerman (1996) extended this result to a situation involving real payoffs.
One group of potential participants in an experiment was offered $7 to participate in a 40-minute
experiment, knowing that all participants would receive $7. A second group was offered $8 to
participate in a 40-minute experiment, knowing that some participants were arbitrarily (based on
a random factor) offered $10. A third group was given an opportunity (1) to participate in a 40minute experiment in which everyone would be paid $7, (2) to participate in a 40-minute
experiment in which some participants, including themselves, would receive $8 and others would
receive $10, or (3) not to participate. Although significantly more participants in the first group
chose to participate than in the second group, the majority of participants in the third group chose
to participate in the experiment that gave them $8 and others $10. Bazerman, Schroth, Shah,
Diekmann, and Tenbrunsel (1994) replicated this basic result in the context of job choice with
second-year MBA students at the Kellogg Graduate School of Management. The pattern of
results remained the same: People maximize profit under joint evaluation although they fail to
do so under separate evaluation.
An information-based theory helps explain these preference reversals (Bazerman et al,
1992). In separate evaluation, individuals do not have a reference point or a basis for evaluating
a particular outcome; each outcomes is therefore simply rated in the abstract. For instance,
Profit vs. Inequality 7
separate evaluation “may have systematically focused subjects’ attentions on relative payoffs
within outcomes and distracted their attention from differences in absolute payoffs across
outcomes” (p. 222, Bazerman et al., 1992). However, under joint evaluation, individuals can use
the two alternative options as reference points of comparison. As Bazerman et al. (1992)
suggest, “In a choice task, the subject evaluating the two outcomes from our earlier example
simultaneously might reason, ‘Surely it is worth $200 in inequality to receive an extra $100’ ”(p.
222). This analysis suggests that the availability of a reference point plays a critical role in
shaping the individual’s preferences. Indeed, Bazerman et al. (1992) further argue that because
joint evaluation facilitates rational profit maximization, decisions made under this setting provide
“a truer measure of preference” (p. 236, Bazerman, et al., 1992).
The Impact of Social Category Membership
Do individuals always maximize profits under joint evaluation? To understand why
social category membership matters, we turn to the social identity literature (e.g., Abrams, 1992;
Deaux, 1996; Hogg & Abrams, 1988; Tajfel, 1981; Turner, 1982). Social identity is “that part of
the individual’s self-concept which derives from his knowledge of his membership of a social
group (or groups) together with the value and emotional significance attached to that
membership” (Tajfel, 1981, p.255). That is, through a self-categorization process (e.g., Hogg &
Abrams, 1990; Turner, Hogg, Oakes, Reicher, & Wetherell, 1987), individuals register certain
social cues in the environment and categorize themselves in terms of a particular identity. These
social identities can range from ascribed social category memberships such as race and gender,
to chosen memberships such as membership in a charity group, to arbitrary memberships such as
individuals who wear red shirts versus blue shirts. Regardless of the form these social categories
take they impact how individuals perceive themselves and those around them.
Profit vs. Inequality 8
Various theoretical frameworks relating to social identity theory highlight the distinction
between individuals sharing a social category and individuals belonging to different social
categories. When two groups come from different social categories, intergroup bias emerges
(Abrams & Hogg, 1988; Brewer, 1979; Deaux, 1996; Tajfel & Turner, 1979; Turner, 1982).
Namely, there is a tendency to favor and trust other ingroup members but to abhor and mistrust
outgroup members, or those outside one’s own social category. Along these lines, the “common
ingroup identity model” (Gaertner, Dovidio, Anastasio, Bachman, & Rust, 1993) postulates that
the level of intergroup bias between groups from different social categories is greater than the
level between groups that share the same social category. For instance, intergroup bias would be
greater between a group of Finns and a group of Swedes than between two groups of Finns or
two groups of Swedes. Studies even demonstrate that re-categorizing two groups from different
social categories under a common super-ordinate social category (i.e., re-categorizing Finns and
Swedes as “Scandinavian”) is sufficient to create intergroup relations that approximate relations
between two groups that share the same social category (Gaertner & Dovidio, 2000). In other
words, invoking a super-ordinate social category facilitates trust and cooperation between two
groups. The common ingroup identity model thus underscores the qualitative difference between
groups that come from different social categories relative to groups that share a social category,
showing how the latter are imbued with trust and cooperation while the former are mired in
mistrust and competition.
Other research also suggests how intergroup relationships across social categories, or
inter-category relations, appear more seriousness in nature than intergroup relations within the
social category, or intra-category relations. For instance, according to the category divide
hypothesis (Miller & Prentice, 1999), a dispute between members of different social categories
Profit vs. Inequality 9
(i.e., females versus males) appears more serious, more immutable, and more irreconcilable than
does the same dispute between members of the same social category (i.e., females versus
females). Moreover, other research also shows how individuals perceive outgroup members
more negatively while perceiving other ingroup members more positively (Abrams & Hogg,
1988; Brewer, 1979; Deaux, 1996). Hence, it appears that relatively speaking, inter-category
relations are fraught with more negativity than intra-category relations.
To understand how social categories can lead individuals to choose outcomes that
maximize equality over profit in joint evaluation, we can actually turn to some of the original
studies for clues (e.g., Bazerman, Loewenstein, & White, 1992; Loewenstein, Thompson, &
Bazerman, 1989), wherein the kinds of interpersonal relationships were examined. Bazerman,
Loewenstein, and White (1992), for instance, had participants imagine payoff allocations
between themselves and their neighbors the Smiths, whose portrayal was either positive or
negative. Under joint evaluation conditions, participants exhibited a tendency to maximize
profit in disparate payoffs over less lucrative equal payoffs when the Smith were portrayed
positively. However, when the Smiths were portrayed negatively, the tendency to prefer profit
maximization was significantly attenuated, although still observed. The researchers explained
this difference in profit maximization as a function of the positive versus negative relationship at
hand. To the extent that inter-category relations involve more negativity than intra-category
ones, we can understand how the tendency to maximize profit under joint evaluation will be
more likely when the allocation occurs between members of the same social category than
between members of different social categories.
While intra-category and inter-category relations are similar though not synomous to
positive and negative interpersonal relations, social dominance theory provides yet another
Profit vs. Inequality 10
perspective on how inter-category relations differ from intra-category ones in profit
maximization under joint evaluation (Levin, Federico, Sidanius, & Rabinowitz, 2002; Sidanius,
1993; Sidanius, & Liu, 1992; Sidanius & Pratto, 1999; Sidanius, Levin, Liu, & Pratto, 2000;
Sidanius, Levin, Rabinowitz, & Frederico, 1999; Sidanius, Pratto, & Rabinowitz, 1994). A
framework used to understand discrimination and intergroup relations, social dominance theory
argues that countervailing forces ultimately strike a power balance between groups from
different social categories, a power balance that ensures the stability of the larger social system.
Hence, introducing an inequality by allocating a disparate payoff to members of different
categories can disrupt the power balance, creating an outcome where one group suffers, in a
sense, incidental discrimination. In intra-category situations, on the other hand, where unequal
allocations occur within the same collective social category, inequality and discrimination do not
emerge as an issue. Therefore, in inter-category situations, individuals should be less willing to
accept payoff allocations that create disparities between two groups relative to payoff allocations
that are egalitarian and preserve the equilibrium, while in intra-category group relations
individuals should be more willing to accept disparate payoff allocations.
Overview
We argue that individuals might not always prefer profit maximization when making a
decision between options even under joint evaluation. The information-based account of joint
evaluation suggests that when two options are presented simultaneously, individuals can clearly
see the advantage of earning more money, even though payoffs to the other person may be even
more (Bazerman et al., 1992). While the differential impact of separate versus joint evaluation of
payoffs is compelling, it nonetheless provides only a limited perspective on how payoff
preferences play out in organizations.
Profit vs. Inequality 11
As the social identity literature reminds us (e.g., Tajfel, 1981), everyone belongs to a vast
number of social identities that dynamically become more or less salient as social cues in the
environment change. Organizations, in particular, are replete with many different social
identities, but especially identities that are germane to the organization at hand. In other words,
individual members of organizations are not just abstract employees, but rather employees
having different social category memberships that are inherently part of the organizational
structure (i.e., “finance” versus “marketing,” “managers” versus “analysts,” “exempt
employees” versus “non-exempt employees”). Recognizing that members of the organizations
have different identities, it becomes imperative to understand the role of social identity in payoff
allocations. After all, making fiscal decisions in the organization rarely occurs in the absence of
social identity factors. Therefore, we hypothesize that individuals will prefer profit
maximization in joint evaluation in the absence of social identity factors (Bazerman, et al., 1992;
Bazerman, et al., 1994; Bazerman, et al., 1995; Blount & Bazerman, 1996); however, simply
overlaying social categories onto the participants of these payoff allocations reverses the
preference from the maximization of profit to the maximization of equality in joint evaluation.
To this end, this paper presents a series of decision-making experiments designed to build
converging evidence for the proposed effect. The first two studies demonstrate the effect among
ingroup members as well as outside observers while the second two studies uncover the
psychological mechanism.
Study 1
Ingroup Members in Joint Evaluation
While parties in intra-category situations will prefer a more lucrative but disparate payoff
to a less lucrative but egalitarian payoff, we predict that participants in inter-category situations
Profit vs. Inequality 12
will prefer the opposite outcome that maximizes equality over profit. Accordingly, we placed
individuals in two different conditions. In the intra-category condition, participants came from
the same social category. In the inter-category condition, participants came from different social
categories. All participants were asked to choose between a lucrative but disparate payoff and a
less profitable but egalitarian payoff.
Participants
A total of 81 Harvard undergraduates participated in a “questionnaire day” held outside
an undergraduate dining hall. The materials for this between-subjects study were imbedded
within a questionnaire packet. Participants were paid $5 for completion of the entire
questionnaire packet, which required twenty-five minutes.
Procedure
Participants in the intra-category condition read the following scenario: “Imagine that
you are a Harvard College student who is enrolling in medical school next year. Other Harvard
College students, however, are planning to enter the workforce. Recently, you learned that
Goldman Sachs is revising its starting salary offers to Harvard College students. Although not
relevant to your medical school aspirations, if Goldman Sachs was deciding between one of the
two salary packages, which one should Goldman Sachs choose?” Participants were told to
imagine that they had plans to attend medical school to standardize their career trajectory, yet
place them in the ingroup role. Participants were then given the following options: “Option A All Harvard students earn $60,000 or Option B – 50% of Harvard students earn $65,000, 50% of
Harvard students earn $80,000.”
The inter-category condition was identical except that the payoff allocation was between
Harvard and Princeton students: “Imagine that you are a Harvard College student who is
Profit vs. Inequality 13
enrolling in medical school next year. Other Harvard College students, however, are planning to
enter the workforce. Recently, you learned that Goldman Sachs is revising its starting salary
offers to Harvard and Princeton students. Although not relevant to your medical school
aspirations, if Goldman Sachs was deciding between one of the two salary packages, which one
should Goldman Sachs choose?” Participants were then given the following options: “Option
A – Harvard students earn $60,000, Princeton students earn $60,000; Option B – Harvard
students earn $65,000, Princeton students earn $80,000.”
Results and Discussion
In the intra-category condition, 70.7 percent of the participants chose to maximize the
pay of their classmates by choosing the disparate but more lucrative Option A. In the intercategory condition, on the other hand, 85 percent of the participants preferred the less profitable
but egalitarian option for their classmates. As illustrated in Figure 1, this data pattern confirmed
our prediction (2 = 25.6, p < 0.001). See Table 1 for frequency data.
These results confirm our prediction that parties in inter-category situations become
averse to outcomes that disrupt the balance between groups that come from different social
categories. That is, individuals have a strong tendency to prefer the less lucrative but egalitarian
option. In intra-category situations, on the other hand, individuals prefer to maximize profit.
There is no aversion to discrepant payoffs because the parties at hand all share the same social
category. Regardless of who is on the winning or losing end of the payoff, the shared social
category always benefits. 1 While this study demonstrates the proposed effect among ingroup
members, our next step is to demonstrate the effect through the lens of an outside observer.
Study 2
Profit vs. Inequality 14
Outside Observers in Joint Evaluation
In Study 2, we attempt to demonstrate the effect found in the previous study through the
perspective of an outside observer belonging to neither social category group. To reiterate, our
hypothesis is that outside observers will likewise prefer the more lucrative but discrepant payoff
in intra-category situations and the less profitable but egalitarian payoff in inter-category
situations.
Participants
A total of 71 college undergraduates from the Boston area participated in a questionnaire
day at Harvard Business School. The key materials for this between-subjects study were
embedded within the pages of a larger questionnaire packet that required forty-five minutes to
complete. Participants were paid $15 for their time.
Procedure
Participants in the intra-category condition read about research grant allocations:
“Imagine that the National Science Foundation (NSF) has decided to award grants to two
graduate schools within the University of Utah. If NSF was considering two following
distribution options, which option should NSF choose?” Participants were given the following
two options: “Option A – School 1 of the University of Utah gets $50,000,000, School 2 of the
University of Utah gets $50,000,000”; “Option B – School 1 of the University of Utah gets
$65,000,000, School 2 of the University of Utah gets $75,000,000.”
The inter-category condition was phrased similarly, except that the payoffs were between
the University of Utah and the University of Wyoming: “Imagine that the National Science
Foundation (NSF) has decided to award grants to the University of Utah and the University of
Wyoming. If NSF was considering two following distribution options, which option should NSF
Profit vs. Inequality 15
choose?” Participants were given the following two options: “Option A –University of Utah
gets $50,000,000, University of Wyoming gets $50,000,000”; “Option B – University of Utah
gets $65,000,000, University of Wyoming gets $75,000,000.”
Results and Discussion
As predicted, 63 percent of the observer participants in the intra-category condition
preferred to maximize profit. In contrast, 73 percent chose the exact opposite, the less profitable
but egalitarian option in the inter-category condition. As illustrated in Figure 2, this data pattern
was highly significant (2= 9.1, p < 0.01) and is consistent with our prediction. See Table 2 for
frequency data.2
Taken together, the results of these studies provide compelling evidence that individual
ingroup members and outside observers alike maximize profit in intra-category situations but
maximize equality in inter-category situations. When allocation recipients share the same social
category, the utility of earning more profit trumps the interpersonal concerns, as explained by a
information-based theory (Bazerman, Loewenstein, & White, 1992). But when allocation
recipients come from different social categories, a disparate payoff disrupts the power balance
between the parties that a less profitable but equal payoff would preserve. Hence, individuals in
inter-category situations prefer to forgo profit for equality. However, a more detailed analysis of
how exactly the social category context leads to the proposed effect is sorely needed. To this
end, we examine more thoughtfully the underlying psychological mechanism in the next studies.
Study 3
Understanding the Mechanism
Both ingroup members and outside observers prefer outcomes that maximize profit over
equality when the allocation recipients share the same social category, as explained by an
Profit vs. Inequality 16
information-based theory (e.g., Bazerman, Loewenstein, & White, 1992). However, when
allocation recipients come from different social categories, ingroup members and observers alike
prefer outcomes that maximize equality over profit. While this effect appears robust, it is
unclear what psychological mechanisms are contributing to this effect in inter-category
situations.
One possible explanation that is consistent with the data pattern stems from a deontic
approach in which individuals pursue fairness for fairness’s sake (Folger, 1998; Turillo, Folger,
Lavelle, Umphress, & Gee, 2002). In other words, participants in the inter-category situations
choose the allocation that maximizes equality over profit because equal payoffs are fairer than
discrepant payoffs when distributing to members of different social categories. Along these
lines, Turillo, Folger, Lavelle, Umphress, and Gee (2002) demonstrate that individuals often will
self-sacrifice personal profit in order to achieve a fair allocation, as “virtue is its own reward” (p.
840; Turillo, Folger, Lavelle, Umphress, & Gee, 2002). Thus, fairness as a moral motive may
explain why ingroup members and outside observers prefer outcomes that maximize equality
over profit in inter-category situations.
Still, another possible explanation for the pattern of results is that individuals want to
maximize their allocation relative to allocations to people in other social categories. Although a
moot point for the outside observer, ingroup members may want choose the less profitable equal
distribution, not because they are guided by the principle of fairness, but because they want to
maximize their payoff relative to the outgroup. That is, participants are guided by a concern to
maximize profit with respect to outgroup members. Hence, participants may choose the equal
payoffs only because the discrepant payoff affords the ingroup a less desirable payoff relative to
outgroup members.
Profit vs. Inequality 17
Another level of complication to these alternative explanations pertains to perspectives of
the ingroup members and outside observers. Although we observe the same results among
ingroup members and outside observers, these results may be driven by psychological
mechanisms. In light of the two alternative explanations, it seems likely that outside observers
may in fact be guided by a deontic approach (Folger, 1998; Turillo, Folger, Lavelle, Umphress,
& Gee, 2002); outside observers, unconnected to the social categories at hand, are in a position
to pursue fairness the sake of fairness. Ingroup members, on the other hand, are not necessarily
guided by fairness but rather a concern to maximize profit relative to the outgroup.
To probe for these two mechanisms, we have participants rate various inter-category
payoff allocations either from the perspective of an ingroup member or an outside observer. We
also include one additional type of discrepant allocation. In the previous studies, the discrepant
allocation was always a disadvantageous one; the ingroup always received the lower payoff with
respect to the outgroup. In this next study, we include an advantageous discrepant allocation
where the ingroup receives a higher payoff with respect to the outgroup. We predict that outside
observers will exhibit a deontic concern for pursuing fairness for the sake fairness: Regardless
of which social category is preferred in discrepant allocations, outside observers will rate
outcomes that maximize equality over profit as more attractive. However, ingroup members will
be guided by a concern to maximize profit relative to outgroup members: Ingroup members will
rate outcomes which maximize equality over profit as unattractive only when the discrepant
payoff favors the outgroup. When discrepant payoffs favor the ingroup, participants will rate the
discrepant payoffs as attractive.
Participants
Profit vs. Inequality 18
A total of 92 Princeton undergraduates participated in a “questionnaire day” held at the
campus student center. The materials for this mixed-design study were imbedded within the
questionnaire packet. Participants were paid $8 for completing the entire questionnaire packet,
which required about 50 minutes of their time.
Procedure
To accommodate the ratings over various types of payoffs, this study employed a mixedfactorial design. Participants were assigned to one of two between-subjects conditions. The
ingroup member condition read as follows: “Imagine that Goldman Sachs is making the
following offers to college students in the State of New Jersey and the State of Pennsylvania.”
The outside observer condition was worded similarly, but placed the Princeton, New Jersey
students in an outside observer role: “Imagine that Goldman Sachs is making the following
offers to college students in the State of Connecticut and the State of Massachusetts.”
All participants were then asked, “Please rate the attractiveness of each of the following
payoff options.” At this point, participants rated each of the nine payoff options in consecutive
order on a 5-point attractiveness scale (1 = Unattractive, 5 = Very Attractive). As written for the
ingroup member condition, the first three options were equal payoff: (Option A) State of New
Jersey students earn $60,000, State of Pennsylvania students earn $60,000; (Option B) State of
New Jersey students earn $65,000, State of Pennsylvania students earn $65,000; (Option C) State
of New Jersey students earn $85,000, State of Pennsylvania students earn $85,000. The next
three options were discrepant options favoring the outgroup: (Option D) State of New Jersey
students earn $60,000, State of Pennsylvania students earn $65,000; (Option E) State of New
Jersey students earn $65,000, State of Pennsylvania students earn $85,000; (Option F) State of
New Jersey students earn $60,000, State of Pennsylvania students earn $85,000. The final three
Profit vs. Inequality 19
options were discrepant options favoring the ingroup: (Option G) State of New Jersey students
earn $65,000, State of Pennsylvania students earn $60,000; (Option H) State of New Jersey
students earn $85,000, State of Pennsylvania students earn $65,000; (Option I) State of New
Jersey students earn $85,000, State of Pennsylvania students earn $60,000.
The payoff options in the outside observer condition were structured and worded
similarly, except the allocations were always between State of Connecticut students and State of
Massachusetts students.
Results and Discussion
To analyze the data, we first created composite variables for Equal Payoffs (Options A,
B, C), Discrepant Payoffs I (Options D, E, F), and Discrepant Payoffs II (Options G, H, I). Of
course, with regard to the ingroup members condition, Discrepant Payoffs I represents
allocations favoring outgroup members while Discrepant Payoffs II represents allocations
favoring ingroup members. These composite variable were then entered into a repeatedmeasures ANOVA and were treated as a three level within-subjects factor called PAYOFF
(Equal / Discrepant I / Discrepant II). The between-subject factor CONTEXT (ingroup members
/ outside observers) was included to examine the potentially different psychological mechanisms
for ingroup members and outside observers.
The results of the repeated-measures ANOVA show that the PAYOFF x CONTEXT
interaction was significant (F(2,180)=16.86, p < .001), as predicted. As Figure 3 illustrates,
individuals in the ingroup member and outside observer conditions rated the attractiveness of the
payoffs differently. The individuals in the ingroup member condition rated the attractiveness of
equal payoffs (M=4.18, SD=.70) significantly higher than the more profitable but disparate
payoffs favoring outgroup members (M=2.56, SD=1.11; t(46)=9.4, p<.001). Interestingly,
Profit vs. Inequality 20
however, it is not the case that ingroup members prefer equal payoffs across the board. Indeed,
as Figure 3 illustrates, ingroup members rated more profitable but disparate payoffs favoring
ingroup members as being more attractive (M=3.95, SD=.95) than disparate payoffs favoring
outgroup members (M=2.56, SD=1.11; t(46)=6.3, p<.001), suggesting that ingroup members
favor equality over profit when they are at a relative disadvantage to an outgroup, yet favor profit
over equality when they are at relative advantage to an outgroup. See Table 3 for means by
condition.
Among outside observers, the data pattern was consistent with the deontic explanation.
That is, outside observers appear to motivated by a concern by fairness for the sake of fairness.
Regardless of whether the discrepant payoffs favor one social category versus another,
participants in the outside observer role rated the less profitable equal payoffs as being more
attractive than more lucrative discrepant payoffs. Equal payoffs were significantly rated as more
attractive than Discrepant Payoffs I (M=3.26, SD=1.20; t(44)=6.7, p<.001) and Discrepant
Payoffs II (M=3.27, SD=1.22; t(44)=5.9, p<.001). Thus, this pattern of results is consistent with
the “virtue is its own reward” approach (Folger, 1998; Turillo, Folger, Lavelle, Umphress, &
Gee, 2002).
As these results suggest, ingroup members and outside observers are guided by different
psychological mechanisms. In Studies 1 and 2, it first appeared that ingroup members were
guided by the pursuit of fairness by selecting the less profitable equal distributions over more
profitable discrepant allocations. However, it now seems that this self-sacrificing behavior
masked the real concern, which is to maximize payoffs relative to outgroup members. Indeed,
ingroup members rated discrepant payoff which favored their social category as being more
favorable than the discrepant payoff which did not favor their category. Individual outside
Profit vs. Inequality 21
observers, on the other hand, who remained unconnected to the social categories at hand, appear
driven by a deontic principle, as they rated equal payoffs as being more attractive than either of
the discrepant payoffs.
Interestingly too, these results highlight the role social identity may play in determining
the psychological mechanism that guides decision making in these inter-category contexts.
When social identity is high (i.e., presumably among ingroup members), then the concern for
maximizing profit relative to the outgroup triumps. However, when social identity is low (i.e.,
presumably among outside observers), then the deontic concern for fairness triumphs. Although
Turillo, Folger, Lavelle, Umphress, and Gee (2002) tried to create a high social identity context
in their final study using a similar methodology (i.e., imagining other ingroup members at the
focal university), they found no differences when it came to pursuing fairness between this high
group-identification condition and their low group-indentification condition, concluding that
people can value fairness for its own sake without impact of social identity. One important
distinction, however, is that their study entailed the perception of one target group member,
whereas the present student focuses on the target groups. As we hope to make more clear in the
next study, social identity appears to play a very important role in determining whether one
espouses a deontic approach versus a relativistic profit maximization approach in choosing
between payoff allocations.
Study 4
The Role of Identification
While outside observers seem to be guided by a fairness-as-virtue motive (Turillo,
Folger, Lavelle, Umphress, & Gee, 2002), is it not possible that ingroup members themselves
can sometimes exhibit a similar deontic principle? We can infer from the previous study that
Profit vs. Inequality 22
social identity plays an important role in determining whether the fairness-as-virture motive
versus relative-profit motive triumphs. Namely, fairness-as-virtue appears to guide intercategory decisions among outside observer participants who have no social identity ties to the
focal social categories, whereas the relative-profit motive influences decisions ingroup members
who have connection to the social categories.
The fact that an individual belongs to a particular social category does not necessarily
mean that he or she identifies with that social category. As previous research has demonstrated
(e.g., Hogg & Hains, 2001), the extent to which a particular group member identifies with the
larger social category varies from person to person. Within any particular social category, some
members will highly identify with the group while other members will not. Therefore, we expect
level of identification with a social category to dictate which mechanism will guide decision
making in inter-category situations. To this end, we make the following predictions about the
pattern of results vis a vis level of social identification: (1) Ingroup members who highly
identify with the focal social category will exhibit a relative-profit motive as observed in Study 3
and (2) Ingroup members who do not highly identity with the focal social category will exhibit a
similar deontic motive that parallels the decision making behavior of outside observers.
Participants
A total of 257 University of Michigan undergraduates participated in a “questionnaire
day” held on campus. The materials for this between-subject study were imbedded within the
questionnaire packet. Participants were paid $8 for completing the entire questionnaire packet,
which required about 50 minutes of their time.
Procedure
Profit vs. Inequality 23
Participants were assigned to one of three conditions. In the intra-category condition,
participants read the following, “Imagine that you are a State of Michigan college student who is
enrolling in medical school next year. Other State of Michigan college students, however are
planning to enter the workforce. Recently, you learned that Goldman Sachs is revising its
starting salary offers to State of Michigan college students. Although not relevant to your
medical school aspirations, if Goldman Sachs was deciding between one of the two salary
packages, which one should Goldman Sachs choose? (Please circle A or B)” Participants then
chose between the two options: Option A – All State of Michigan students earn $60,000; Option
B – 50% of State of Michigan students earn $65,000, 50 % of State of Michigan students earn
$80,000.
The other two conditions were similar, but worded to reflect an inter-category context.
That is, “…Goldman Sachs is revising its starting salary offers to State of Michigan and State of
Ohio college students…” The payoff options were also worded differently to reflect the different
conditions. The inter-category – unfavorable condition included a payoff option in which
Michigan students were on the less favorable end of discrepant allocations: Option A – State of
Michigan students earn $60,000, State of Ohio students earn $60,000; Option B – State of
Michigan students earn $65,000, State of Ohio students earn $80,000. The inter-category –
favorable condition reversed the allocations in Option B: State of Michigan students earn
$80,000, State of Ohio students earn $65,000.
To measure social identification, we later asked participants the following question at the
end of the questionnaire packet: “To what extent do you identify with the University of
Michigan?” (1 = not at all, 7 = very much). All participants in the sample were college students
of this state of Michigan institution.
Profit vs. Inequality 24
Results and Discussion
To analyze the differences between low identifiers and high identifiers of this state of
Michigan university, we conducted a midpoint split on the social identification variable.
Participants who circle a number below the midpoint on the scale (e.g., values less than 4) were
considered to be low identifiers while participants who indicated a number above the midpoint
(e.g., values greater than 4) we considered to be high identifiers. A total of 19% of the
participants were on the midpoint of the scale (e.g., value = 4) and were eliminated from the
subsequent analyses. We also coded the chosen payoff option in a binary fashion (Option A = 1,
Option B = 2). We then proceed to conduct a 2 (IDENTITY: low / high) x 3 (CONTEXT:
intra-category / inter-category – unfavorable / inter-category – favorable) ANOVA on the choice
of payoffs.
Results indicated a significant main effect for CONTEXT (F(2, 207)=14.6, p<.001). In
the intra-category condition, 65 percent of the participants chose the more lucrative disparate
payoff option over the less profitable equal allocation, whereas only 16 percent of those in the
inter-category –unfavorable condition and 48 percent of those in the inter-category –favorable
condition chose profit over equality. These results reveal a pattern that is consistent with the
ingroup member condition of Study 3.
Interestingly, however, low and high identifiers exhibit different preferences, as reflected
by a significant IDENTITY x CONTEXT interaction (F(2, 207) = 3.5, p<.05). The high
identifiers exhibited preferences consistent with the concern for relative-profit maximization. As
illustrated in a significant pattern (2= 32.6, p < 0.001), 62 percent of the highly identifying
participants in intra-category condition chose to maximize profit by selecting the lucrative
discrepant payoff over less profitable equal allocations for ingroup members. Likewise, 55
Profit vs. Inequality 25
percent of the participants in the inter-category – favorable condition maximized profit over
equality then the disparate outcome favored Michigan college students. Only when Michigan
college students received lower allocations relative to Ohio college students did they prefer the
less profitable equal distribution, as only 13 percent of the participants in the inter-category –
unfavorable condition chose to maximize profit; they overwhelmingly preferred the less
profitable equal allocation. See Table 4 for percentages by condition.
However, ingroup members will not always maximize ingroup profit relative to outgroup
profit. As predicted, low identifiers exhibited preferences akin to those of the outside observer in
Study 3. As illustrated in a significant pattern (2= 10.0, p < 0.01), 77 percent of the low
identifiers in the intra-category condition preferred the more lucrative discrepant payoff over the
less profitable equal distribution. However, notably only 28 percent in the inter-category –
favorable and only 25 percent in the inter-category – unfavorable condition preferred the more
disparate payoff; participants in these conditions greatly preferred to maximize equality over
profit. See Figure 4.
These results demonstrate the role of social identification. That is, the extent to which
people identify with the focal social category influences allocation preferences. While Study 3
suggests that ingroup members appear guided by a concern to maximize profit relative to
outgroup members in these inter-category situations, this concern primarily applies to individuals
who highly identify with the focal social category. These results, on the other hand, reveal that
ingroup members who do not greatly identify with the focal social category become guided by a
fairness-as-virtue concern. Regardless of whether the ingroup receives a favorable or
unfavorable disparate allocation with respect to the outgroup, individuals who are not strong
identifiers prefer less profitable equal allocations. Hence, ingroup members who do not highly
Profit vs. Inequality 26
with the focal social category exhibit a psychological mechanism similar to that of outside
observers.
General Discussion
Harnessing an information-based account of joint versus separate evaluation, previous
research has suggested that the joint presentation of alternative payoff allocations allows
individuals to use the alternative options as reference points and consequently choose profit
maximization (Bazerman, Loewenstein, & White, 1992; Bazerman, Schroth, Shah, Diekmann, &
Tenbrunsel, 1994; Bazerman, White,& Loewenstein, 1995; Blount & Bazerman, 1996).
However, profit maximization in joint evaluation only captures those circumstances in which
payoff recipients all share a social identity. As we know, however, organizations comprise a
wide range of different types of social categories (e.g., Hogg et al., 2000), and theoretical
frameworks related to social identity theory reveal how relations between members of different
social categories are qualitatively different from relations between members of the same social
category. Along these lines, the present studies demonstrate that when allocations are made
between members of different social categories, individuals no longer prefer profit
maximization, even in a well-informed joint evaluation setting.
A further exploration of the mechanism reveals how ingroup members and outside
observer may similarly become averse to disadvantageous profit under inter-category conditions,
but for different reasons. Outside observers appear to be guided by a fairness-as-virtue principle,
as they always prefer less lucrative equal distribution over more profitable disparate allocation in
inter-category situations, regardless of the social categories at hand. For ingroup members, the
mechanism of the effect is a little more complicated. Ingroup members who highly identity with
their social category appear to be guided a concern for relative-profit maximization, in other
Profit vs. Inequality 27
words maximizing profit relative to the outgroup. Not unlike outside observer, ingroup members
who do not strongly identity with the focal social category appear to be guided by a deontic
principle as they prefer fair, less profitable equal distributions between social categories, even if
their own social category has more to gain relative to the outgroup. These studies therefore
advance our understanding how the two strong human tendencies – of profit maximization on the
one hand and social comparison on the other – interact to impact decision making in social
settings. Nevertheless, this present research illustrates how payoff allocations often occur in the
broader context of different social categories, not just within the narrow boundaries of one social
category, and social identity factors dramatically influence the preference for profit
maximization even in joint evaluation.
Implications for Organizations
Importantly, moreover, the present findings also shed new light on how members of
organizations may react differently to different forms of payoff allocations depending on social
context at hand.. That is, when allocations are distributed within one social category, or in a
context in which no particular social identity is made salient, individuals would be more likely to
choose profit maximization. When social categories are made salient, however, profit
maximization can become the exception rather than the rule even under joint evaluation and not
only under separate evaluation as was previously thought.
When organizations generate allocations, they often choose a particular payoff scheme
from among a number of different options. The present research suggests, however, that
managers in the organization should exhibit caution when making allocations between different
social categories within the organization. Thus, while managers may rationally assume that
profit maximization is optimal, constituent groups may feel betrayed or discriminated to receive
Profit vs. Inequality 28
have received a disparate payoff and ironically may even prefer a less profitable equal payoff,
depending on whether the discrepant payoff is an advantageous versus disadvantageous one and
whether they are or are not highly identify with the social category at hand.
The process of “re-categorization,” however, may help safeguard against the salience of
different social categories in organizations. Using this process, which follows from the “common
ingroup identity model” (Gaertner et. al, 1993). Through “re-categorization,” a process by which
a larger, more inclusive, social category is made salient, trust and cooperation can be created
between groups from different social categories. For instance, if the relevant social categories
are two different departments of Charles Schwab, such as the Information Technology and
Accounting departments, competing for funding, the common ingroup identity model suggests
that trust and cooperation can be facilitated by making salient the fact that both departments
belong to the same company. Under the superordinate category of “Charles Schwab,” it may be
easier for the two departments to accept a payoff allocation that is more profitable yet disparate.
Future Directions
Arguably one intriguing aspect of the present study is that it focuses exclusively on
allocations among groups, and not individuals per se. In other words, all of the allocations were
intergroup in nature, whether intra-category or inter-category, and not interpersonal ones
between individuals. Perhaps this different level of analysis may explain why social
identification seems to influence the perception of fairness in this research but not selfsacrificing behavior in other research that was conducted at the interpersonal level (e.g., Turillo,
et. al, 2002). Perhaps social identity only exerts its effect on decision making at a more
aggregate or group level. Alternatively, as Turillo, Folger, Lavelle, Umphress & Gee (2002)
themselves note, there is difficulty when generalizing from null effects and perhaps their
Profit vs. Inequality 29
manipulation of social identity in the interpersonal context was not strong enough. Nevertheless,
while the present research underscores the influence of social identity factors at the intergroup
level, it would be interesting to explore how social identity influences preferences differently
depending on the interpersonal or intergroup context of the decision.
Additionally, it would be interesting to explore the temporal relations of the intercategory participants in payoff allocations. Previous research has demonstrated that individuals
tend to become more cooperative in the prisoner’s dilemma game as the number of rounds
increases (Axelrod & Dion, 1988); over time, participants learn to trust each other to maximize
joint returns. Extending this relationship between time and trust to the present research, groups
from different social categories that find themselves in important allocation situations time and
time again might cultivate trust in their intergroup relations and become more willing accept
disparate payoffs.
Conclusion
Previous findings have shown that individuals maximize profit under joint evaluations.
However, in the absence of social identity factors, this effect arguably represents a limited
perspective. Members of organizations have many social identities and belong to numerous
social categories that become more or less salient as social cues in the environment change.
Taking these social identity factors into account, the present study reveals how social category
membership affects preferences for payoff outcomes under joint evaluation. Specifically, when
allocations are made between groups that come from different social categories, individuals no
longer choose to maximize profit under joint evaluation and instead prefer less lucrative but
equal allocations. Only in the narrow circumstance where individuals share the same social
category membership do they tend to maximize profit. Offering a broader perspective, these
Profit vs. Inequality 30
findings underscore the pressure for equitable payoff allocations in organizations whose very
nature is rife with group members from different departments, divisions, alma maters, regions,
and other social categories, whose own degree of identification to these different categories
varies from person to person.
Profit vs. Inequality 31
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Footnotes
1. A supplemental study (N=32) with Princeton students was also conducted to demonstrate
this effect on ingroup member participants. The intra-category condition read, “Imagine
that Goldman Sachs is revising its starting salary offers to Princeton students. If
Goldman Sachs was deciding between one of the two salary packages, which would you
prefer?” The choice set offered two options: “Option A – All Princeton students
(including yourself) earn $60,000; Option B – 50% of Princeton students (including
yourself) earn $65,000, 50% of Princeton students earn $85,000.” The inter-category
condition was identical except between Princeton and Harvard students. In the intracategory condition, 87.5 percent of the participants preferred the more lucrative but
disparate payoff. In contrast, 75 percent of the participants in the inter-category
condition preferred the exact opposite, the lesser but equal payoff (2 = 12.7, p < 0.001).
2. To further buttress this effect from an outside observer perspective, we replicated the
effect among participants in observer roles. In a between-subjects design, 21 Princeton
students read the Goldman Sachs starting-salary scenario and decided payoff allocations
between Stanford students (intra-category situation) or between Stanford and Yale
students (inter-category situation). Again, consistent with our prediction, 8 out of 9 of
the Princeton participants (89 percent) in the intra-category condition chose the profitable
but disparate option, whereas 10 out of 12 of the Princeton participants (83 percent) in the
inter-category condition chose the less profitable but egalitarian option (2= 9.5; p<0.01).
Profit vs. Inequality 37
Author’s Note
The authors wish to thank Daniel Kahneman for thoughtful comments on the paper. The
first author was supported in part by a Research Fellowship from the Program on Negotiation at
Harvard Law School.
Profit vs. Inequality 38
Tables
Table 1
Frequency of Payoff Choice by Intra- and Inter-Category Context
________________________________________________________________
Condition
$60k/$60k
$65k/$80k
________________________________________________________________
Harvard Students
29% (12)
71% (29)
Harvard vs. Princeton Students
85% (34)
15% (6)
________________________________________________________________
Profit vs. Inequality 39
Table 2
Frequency of Payoff Choice by Intra- and Inter-Category Context
________________________________________________________________
Condition
$60M/$60M
$65M/$85M
________________________________________________________________
University of Utah
37% (14)
63% (24)
University of Utah vs.Wyoming
73% (24)
27% (9)
________________________________________________________________
Profit vs. Inequality 40
Table 3
Attractiveness Ratings of Payoff Allocations by Perspective
Ingroup Member
Outside Observers
Equal Payoffs
4.18 (.70)
4.38 (.69)
Discrepant Payoffs I
2.56 (1.11)
3.26 (1.20)
Discrepant Payoffs II
3.95 (.95)
3.27 (1.22)
Note: Attractiveness ratings are based on a lickert scale (1 = “Unattractive,” 5 = “Very
Attractive”). Relevant to the ingroup member condition, Discrepant Payoffs I favors outgroup
members while Discrepant Payoff II favors ingroup members.
Profit vs. Inequality 41
Table 4
Percentage Choosing to Maximize Profit by Level of Identification
Intra-Category
Inter-Unfavorable
Inter-Favorable
High Identifyers
62%
13%
55%
Low Identifyers
77%
25%
28%
Note: Inter-Unfavorable is the inter-category condition where ingroup receives the relatively
lower allocation in the discrepant payoff; inter-favorable is the inter-category condition where
ingroup receives the relatively higher payoff.
Profit vs. Inequality 42
Figures
Figure 1
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
$60K / $60K
$65K / $80K
Harvard and Princeton
Harvard and Harvard
Profit vs. Inequality 43
Figure 2
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
$50M / $50M
$65M / $75M
Utah and Wyoming
Utah School 1 and
Utah School 2
Profit vs. Inequality 44
Figure 3
Attractiveness (5=very attractive)
5
4
Equal Payoffs
Discrepant Payoffs I
Discrepant Payoffs II
3
2
1
Ingroup Participant
Outside Observer
Profit vs. Inequality 45
% Choosing Profit Maximization
Figure 4
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Intra-Category
Inter-Unfavorable
Inter-Favorable
High Identifyers
Low Identifyers