Partnership Formation: The Role of Social Status

We experimentally test for the effect of social status on the likelihood of partnership formation. We consider a two-player game where the opportunity to perform a hidden action by one player may render partnership formation difficult. In this context, we study how the assignment of partners' status to the top, middle, or bottom position of a preexisting status hierarchy affects collaboration. We find that partnership formation is remarkably sensitive to the partners' status affiliations. Collaboration is easiest when both partners share the same social status, and the probability of partnership formation decreases significantly as the status gap between the partners increases, entailing massive inefficiency. This paper was accepted by Uri Gneezy, behavioral economics.