Strategic Discrimination in Embedded Contexts and the Emergence of Systematic Exclusion

Abstract

This paper studies how individuals consider other individuals’ preferences when selecting whom to include in a group or network in the absence of any personal taste or statistical reason associated with the inclusion of a particular applicant. We investigate the potential causes why selectors live up to the group composition preferences of other group members. First, selectors have altruistic feelings towards them and select their preferred candidates. Second, selectors anticipate that their cooperativeness depends on who will be included and select, strategically, candidates preferred by current group members. We investigate these reasons for discrimination in a economic experiment in which we allow for endogenous group formation and show that discriminatory behavior emerges even when selectors have no taste against any candidate nor any reason to discriminate statistically, but still discriminate in favor of current group member’s preferred candidate both for altruistic and strategic reasons. We thereby identify a new major source for structural discrimination and for the perpetuation of systematic exclusion of outsiders disfavored by insiders, even when the last ones do not participate in the decision of whom to include. We discuss implications for policies aimed at overcoming it in hiring decisions, employee referral programs, quotas, and bonus payments.