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Group Formation, In-group Bias and the Cost of Cheating

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  • Michaeli, Moti

Abstract

Group formation and in-group bias - preferential treatment for insiders - are widely observed social phenomena. This paper demonstrates how they arise naturally when people incur a psychological cost as the result of defecting when facing cooperators, when this cost is increasing and concave in the number of such defections. If some group members are asocial, i.e., insusceptible to that cost, then, under incomplete information, free-riding and cooperation can coexist within groups. Signaling of one's type can enable groups to screen out free-riders, but signalling is costly, and its availability may decrease the welfare of all the individuals in society.

Suggested Citation

  • Michaeli, Moti, 2015. "Group Formation, In-group Bias and the Cost of Cheating," Economics Working Papers MWP2015/04, European University Institute.
  • Handle: RePEc:eui:euiwps:mwp2015/04
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    References listed on IDEAS

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    More about this item

    Keywords

    In-Group Bias; Group Formation; Costly Signalling; Prisoner's Dilemma Game;

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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