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Social Identity, Competition, and Finance: A Laboratory Experiment


  • Stefan Bauernschuster

    () (University of Jena, Graduate College "The Economics of Innovative Change"; Max Planck Institute for Economics)

  • Oliver Falck

    () (Ifo Institute for Economic Research, Munich)

  • Niels Daniel Grosse

    () (University of Jena, Graduate College "The Economics of Innovative Change")


There is extensive literature, both theoretical and empirical, on the effects of social identity on a wide range of economic and non-economic outcomes. However, there is only scarce knowledge about how social identity is affected by policies or market structure. We address the question how competition among suppliers of finance interacts with trust and trustworthiness in a laboratory one-shot trust game. In order to disentangle pure effects of competition and effects of competition that concern social identity, we apply a 2 x 2 treatment design. We induce social identity by letting subjects play coordination games with clear focal points, which leads to higher investments and trustworthiness in the trust game. Our results show that competition has no significant effects on trust and trustworthiness of individuals in a strangers' framework. However, in a framework with competition of in-group and out-group investors we see that competition leads to crowding out of social identity by reducing trustworthiness. We suggest that once competition comes into play, trustees see in-group trustors' investments as the outcomes of a competitive bidding process rather than voluntary trust, which crowds out reciprocity.

Suggested Citation

  • Stefan Bauernschuster & Oliver Falck & Niels Daniel Grosse, 2009. "Social Identity, Competition, and Finance: A Laboratory Experiment," Jena Economic Research Papers 2009-052, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2009-052

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    Cited by:

    1. Timo Tammi, 2011. "Contractual preferences and moral biases: social identity and procedural fairness in the exclusion game experiment," Constitutional Political Economy, Springer, vol. 22(4), pages 373-397, December.
    2. Tom Lane, 2015. "Discrimination in the laboratory: a meta-analysis," Discussion Papers 2015-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

    More about this item


    Trust Game; Social Identity; Competition;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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