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

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