Profit Maximization versus Disadvantageous Inequality: The Impact of Self-Categorization

29 Pages Posted: 16 Feb 2005  

Stephen M. Garcia

University of Michigan

Avishalom Tor

Notre Dame Law School; University of Haifa - Faculty of Law

Max H. Bazerman

Harvard Business School - Negotiations, Organizations and Markets Unit

Dale T. Miller

Stanford Graduate School of Business

Date Written: December 2004

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

Suggested Citation

Garcia, Stephen M. and Tor, Avishalom and Bazerman, Max H. and Miller, Dale T., Profit Maximization versus Disadvantageous Inequality: The Impact of Self-Categorization (December 2004). Harvard PON Working Paper. Available at SSRN: https://ssrn.com/abstract=661444 or http://dx.doi.org/10.2139/ssrn.661444

Stephen M. Garcia

University of Michigan ( email )

741 Dennison Hall
Ann Arbor, MI 48109
United States
734-615-2561 (Phone)

HOME PAGE: http://www.sitemaker.umich.edu/stephen.garcia

Avishalom Tor

Notre Dame Law School ( email )

P.O. Box 780
Notre Dame, IN 46556-0780
United States

University of Haifa - Faculty of Law ( email )

Mount Carmel
Haifa, IN IN 31905
Israel

Max H. Bazerman (Contact Author)

Harvard Business School - Negotiations, Organizations and Markets Unit ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6429 (Phone)
617-496-4191 (Fax)

HOME PAGE: http://www.people.hbs.edu/mbazerman

Dale T. Miller

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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