To what extent defining a group predicates on defining other groups?

PROBLEM STATEMENT & PURPOSE OF STUDY: According to Brewer and Miller (1996, pp. 48), 'both theory and research are ambiguous on this issue of the need for specific out-groups as a factor in in-group identity.' In this paper, we construct a formal economic model to shed light on this issue. METHOD: Game theory is used. Consider a community consisting of a population partitioned into n exhaustive and mutually exclusive groups. Group members are concerned not only about material payoffs, but also about psychological payoffs derived from interactions with people; for instance members of the same group derive greater psychological payoffs from interacting among themselves then from interacting with others. Making use of the cooperative game theory (Shapley value), we can examine whether and how stronger in-group identification may enhance the group’s bargaining power in negotiating the terms of cooperation with other group. FINDINGS AND RESULTS: We show that stronger in-group identification increases the group’s bargaining power in negotiating the terms of cooperation with other group. In other words, stronger psychology leads to stronger economic benefits. We next study a group's incentive to strengthen its own identity, through means such as education, propaganda, etc. Two strategies are compared --- one strategy that increases the group's amicability among members and another strategy that decreases its amicability towards some judiciously chosen out-group. We find that a large group benefits more from the former and a small group more from the latter. This thus sheds light on the question to what extent defining a group predicates on defining other groups. CONCLUSIONS AND RECOMMENDATIONS: In a game theoretic model, we delineate the conditions under which defining a group predicates on defining other groups. In the last two decades, economics has been learnt a lot from psychology. In this paper, we show that by using formal modeling that is familiar in economics but not in psychology we can shed light on issues that interest psychologists.The 2nd World Conference on Psychology, Counselling and Guidance, Antalya, Turkey, 25-30 May 2011