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Discrimination and In-Group Favoritism in a Citywide Trust Experiment

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Author Info
Armin Falk () (IZA, University Bonn and CEPR)
Christian Zehnder () (University of Zurich and IZA)

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Abstract

This paper provides field experimental evidence on the prevalence and determinants of discrimination and in-group favoritism in trust decisions. We observe choices of about 1,000 inhabitants of the city of Zurich who take part in a sequential trust game, in which first movers can condition their investments on the residential districts of second movers. Our main results can be summarized as follows: First movers discriminate significantly in their investment choices, i.e., strangers receive different investments depending on the district they live in. The systematics of the discrimination pattern is underlined by data from an additional newspaper study, where participants correctly guessed the outcome of the study. In terms of district characteristics two factors seem to be key for a district's reputation: while expected trustworthiness of a district increases in the socio-economic status it decreases in the degree of ethnic heterogeneity. Observed discrimination is not just based on mistaken stereotypes but can at least partly be classified as statistical discrimination. This can be inferred from the fact that, on a district level, both expected return on investment and actual investments are positively correlated with actual back transfers. First movers correctly anticipate different levels of trustworthiness and discriminate accordingly. Furthermore, we provide evidence of in-group favoritism, i.e., people trust strangers from their own district significantly more than strangers from other districts. Finally, we discuss individual determinants of discrimination and in-group favoritism.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2765.

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Length: 38 pages
Date of creation: Apr 2007
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Handle: RePEc:iza:izadps:dp2765

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Related research
Keywords: discrimination; in-group favoritism; trust; trustworthiness; reciprocity; social capital; city development;

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Find related papers by JEL classification:
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chaim Fershtman & Uri Gneezy, 2001. "Discrimination In A Segmented Society: An Experimental Approach," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 351-377, February. [Downloadable!] (restricted)
    Other versions:
  2. Lorenz Goette & David Huffman & Stephan Meier, 2006. "The impact of group membership on cooperation and norm enforcement: evidence using random assignment to real social groups," Working Papers 06-7, Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
  3. Simon Gaechter & Benedikt Herrmann, 2006. "The limits of self-governance in the presence of spite: Experimental evidence from urban and rural Russia," Discussion Papers 2006-13, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
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  4. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April. [Downloadable!] (restricted)
  5. Werner Güth & Matteo Ploner & Vittoria Levati, . "The Effect of Group Identity in an Investment Game," Papers on Strategic Interaction 2005-06, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June. [Downloadable!]
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  7. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  8. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May. [Downloadable!] (restricted)
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  9. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August. [Downloadable!] (restricted)
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  10. Daniel Haile & Abdolkarim Sadrieh & Harrie A. A Verbon, 2006. "Cross-Racial Envy and Underinvestment in South Africa," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  11. Glenn C. Loury, 1976. "A Dynamic Theory of Racial Income Differences," Discussion Papers 225, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  12. DiPasquale, Denise & Glaeser, Edward L., 1999. "Incentives and Social Capital: Are Homeowners Better Citizens?," Journal of Urban Economics, Elsevier, vol. 45(2), pages 354-384, March. [Downloadable!] (restricted)
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  13. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 811-846, August. [Downloadable!] (restricted)
  14. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July. [Downloadable!] (restricted)
  15. Guth, Werner & Huck, Steffen & Muller, Wieland, 2001. "The Relevance of Equal Splits in Ultimatum Games," Games and Economic Behavior, Elsevier, vol. 37(1), pages 161-169, October. [Downloadable!] (restricted)
  16. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dohmen, Thomas J & Falk, Armin & Huffman, David & Sunde, Uwe, 2008. "The Intergenerational Transmission of Risk and Trust Attitudes," CEPR Discussion Papers 6844, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Steffen Altmann & Thomas Dohmen & Matthias Wibral, 2007. "Do the Reciprocal Trust Less?," IZA Discussion Papers 3010, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Claudia Senik & Holger Stichnoth & Karine Van der Straeten, 2008. "Immigration and natives' attitudes towards the welfare state: Evidence from the European Social Survey," PSE Working Papers 2008-43, PSE (Ecole normale supérieure). [Downloadable!]
  4. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe, 2008. "Homo Reciprocans: Survey Evidence on Behavioural Outcomes," Research Memoranda 007, Maastricht : ROA, Research Centre for Education and the Labour Market. [Downloadable!]
    Other versions:
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