Group Identity in Intermediated Interactions: Lessons from a Trust Game with Delegation in South Africa

Abstract

We investigate the role of group identity in delegated decision-making. Our framework considers the impact of group identity (based on racial segregation in post-Apartheid South Africa) on decisions to appoint a representative in a trust game with delegated decision-making, where information on the race group of other players is either common or private knowledge. We test our framework experimentally on a sample of young South Africans who had never been exposed to experimental economics research. By exogenously matching parties according to their race group, we observe their endogenous trust and delegation behavior. Our results suggest that white players try to use information about group identity to increase profits, albeit unsuccessfully. This may help to explain distrust and coordination failures observed in real-life interactions.