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The Discrimination Tax

New research suggests that people will discriminate even at a personal price


It is your moment of decision. Your business partner has the only passcode that can access the pile of money you have made together. The scoundrel has offered you 30% instead of the half that is rightfully yours. But you have the ability to delete the account, along with every penny in it, permanently. If you refuse his offer and delete the account, neither of you will see a cent. Of course you are furious, but how much are you willing to lose just to spite him?

This scenario is an ultimatum game, an experimental game used to study how people resolve dilemmas that pit fairness against profit. The economically rational thing to do is to accept any offer greater than zero, simply because some money is better than no money. But people don’t respond that way. Offers lower than 25% are often rejected, suggesting that most people are willing to sacrifice to punish unfair treatment. Although it violates economic axioms, most ordinary people are not surprised by this result. We will pay to enforce respect.

New research suggests that we may demand greater respect from some people than others. Jennifer Kubota and colleagues asked research subjects from a variety of racial backgrounds to make repeated decisions in an ultimatum game. Along with each offer, they saw a photo of the person who was making the offer on a computer screen. They made 160 decisions, including offers from 60 White men and 60 Black men, as well as 40 offers from men of other races. Subjects had to decide whether to accept the money or to reject it, in which case neither partner received anything. Most importantly, subjects received identical offers on average from Black and White partners.

The study found a small but statistically significant racial bias. Subjects rejected about 2 percent more offers from Black partners than White partners overall. The individuals who were most discriminatory were the ones who scored highest in racial bias on an implicit test that measured how quickly subjects associated Blacks and Whites with pleasant and unpleasant words. These effects are relatively small, but the important new insight in this study is that the authors have found a way to quantify the price people are willing to pay to discriminate. Every rejected offer costs the subject money.

This experiment offers an important tool to help understand the impact of racism in economic life. It provides a bridge to connect two very different views on racial discrimination that are part of a long running debate about whether racial discrimination is still a potent force today.

Consider an argument made by the Nobel prize winning economist Gary Becker in the 1950’s — namely, that arbitrary racial discrimination cannot persist in a free market because it would put discriminating firms at a disadvantage compared to competitors who took advantage of the best talent regardless of race. The well-staffed egalitarian competitors would beat out the discriminating firms. So whenever discrimination pops up, it should quickly go extinct. This line of reasoning leads to the conclusion that if Blacks are not being hired at rates equal to Whites, then it must be because Blacks are less qualified.
This argument rubs a lot of people the wrong way. In addition to a blame-the-victim mentality, the argument places an awful lot of faith in assumptions about human rationality and the free market. It calls to mind the old joke about the engineer, the chemist, and the economist stranded on a desert island. They are starving when this load of debris washes ashore, including a big can of chicken soup. The engineer says, “Let’s bash it open with a rock.” The chemist says, “No, let’s build a fire and heat it. The pressure from the hot soup will burst open the can.” “No, I’ve got it,” says the economist, scrawling an equation in the sand. “First, assume a can opener…”

Not all economists, of course, believe that racial discrimination is extinct. But it is a difficult thing to study because business people who discriminate are unlikely to talk about it. We have plenty of statistics showing that poverty and unemployment rates are about twice as high for Blacks compared to Whites. But those kinds of data do not tell us whether discrimination is the culprit, as opposed to group differences in qualifications.

Some of the most powerful evidence comes from studies that send experimenters to apply for real jobs. In one study, sociologist Devah Pager sent pairs of college student experimenters — one Black, one White — to apply for hundreds of job openings in Milwaukee. They used resumes that were matched in qualifications. They dressed alike and talked alike. Pager orchestrated the process in detail so that only race distinguished them.

Were the Black applicants treated equally? Not even close. Fourteen percent of the Black applicants received call backs, compared to 34 percent for the White applicants. Versions of this study have been repeated in New York, Chicago, and other cities and the results are consistent. These studies are not from the 1950’s, but the last decade. Discrimination happens.

Devah Pager speculates that while old-fashioned bigotry may have played a role, many of the employers may not have intended to discriminate. One possibility is that a resume just looks less qualified to the employer when it is from a Black applicant, even if the employer is trying to decide on the merits of the application. The study could not test these explanations, though.

This brings us back to Kubota’s study of the ultimatum game, in which discrimination was associated with higher implicit bias. This result starts to sound a lot like what Pager speculated (but could not test) about unintended bias contributing to discriminatory hiring. The same ultimatum may have just looked more unfair, felt more disrespectful, when it came from a Black man. The argument from economic rationality overlooks these very human inclinations.

Ultimately, Becker’s economic argument and the studies of Kubota and Pager agree that racial discrimination in the face of equal merits is irrational. It forces a person to choose between discriminating and maximizing profit. But the two views differ on how that conflict is resolved. Economic theory assumes that people would not sacrifice their self-interest in order to discriminate. Behavioral experiments suggest, however, that we are not simply selfish; we are groupish. We will pay a price for our tribes.

Are you a scientist who specializes in neuroscience, cognitive science, or psychology? And have you read a recent peer-reviewed paper that you would like to write about? Please send suggestions to Mind Matters editor Gareth Cook, a Pulitzer prize-winning journalist and regular contributor to Gareth is also the series editor of Best American Infographics, and can be reached at garethideas AT or Twitter @garethideas.

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