When to Favour Your Own group? The Threats of Costly Punishments and In-group Favouritism

Using a laboratory experiment with minimal groups, we examined the extent to which the threats of costly punishments affect in-group favouritism behaviour. We studied three types of punishment separately: in-group, out-group, and third-party punishments. In line with previous studies, the majority of the allocators favoured their own group by allocating more money to each of the in-group members at the expense of the out-group in the baseline without punishment. In the in-group punishment treatment, we observed a slight increase in in-group favouritism behaviour. On the contrary, when only the out-group could punish the allocators, there was a significant drop in in-group favouritism behaviour as well as an increase in the equal division option. Finally, when faced with an independent third-party punisher the allocators continued to favour their own group. The threat of third-party punishment appeared to have no effect on their decisions. Our paper contributes to the literature on in-group favouritism and the nature of social norms by showing that the decision whether to favour one’s own group is affected by the threats of in-group and out-group punishments and whether it leads to an increase or decrease in this behaviour depends on who has the punishment power. Parochial or in-group biased norm was enforced by the in-group members, whilst ‘egalitarian sharing norm’ (across groups) was enforced by the out-group members. We conclude firstly that people apply different ‘self-serving’ social norms depending on their own group identity. Secondly, unlike selfish or opportunistic behaviours, independent third-parties, who only observed this behaviour but were not directly affected by it, were not willing to punish this behaviour.