05 Jul 2006  Working Papers

Maximizing Joint Gains: Transaction Utility Within and Between Groups

Executive Summary — Win-win deals are more easily described than carried out. Earlier studies have shown that when people don't know the gender or social category of their negotiating partner, they are happy to make a profit even if their partner earns a greater profit. Four new studies looked at how gender or other social contexts influence the way people cut a deal. Key concepts include:

  • Social category in context is key to negotiation.
  • What we consider a good deal within our own social category may be a worse deal when we compare ourselves to members of a different social category.
  • "Maximizing the pie" in negotiation may be more difficult across social category lines (e.g., countries, regions, etc.). Brokering win-win deals across national, cultural, and religious lines therefore requires special care.

 

Author Abstract

In a choice between equal payoffs (e.g., self gets $500 / other person gets $500) and more lucrative but disadvantageously unequal payoffs (e.g., self gets $600 / other person gets $800), individuals willingly trade disadvantageous inequality for extra profit (e.g., Blount and Bazerman, 1996), choosing the more lucrative but disadvantageously unequal payoff. The present analysis, however, explores how the transaction utility (Thaler, 1985; 1999), the perceived value of such "deals," depends on whether allocation recipients come from the same social category (e.g., same gender) or different ones (e.g., females versus males). Studies 1 - 3 test the prediction that individuals tend to trade disadvantageous inequality for greater profit when allocations recipients share the same social category (e.g., within groups), but do not when recipients belong to different social categories (e.g., between groups). Study 4 shows that the transaction utility of disadvantageous inequality requires a greater premium between groups than it does within them. Implications for maximizing joint gains are discussed.

Paper Information