When do stereotypes undermine indirect reciprocity?

Social reputations provide a powerful mechanism to stimulate human cooperation, but observing individual reputations can be cognitively costly. To ease this burden, people may rely on proxies such as stereotypes, or generalized reputations assigned to groups. Such stereotypes are less accurate than individual reputations, and so they could disrupt the positive feedback between altruistic behavior and social standing, undermining cooperation. How do stereotypes impact cooperation by indirect reciprocity? We develop a theoretical model of group-structured populations in which individuals are assigned either individual reputations based on their own actions or stereotyped reputations based on their groups' behavior. We find that using stereotypes can produce either more or less cooperation than using individual reputations, depending on how widely reputations are shared. Deleterious outcomes can arise when individuals adapt their propensity to stereotype. Stereotyping behavior can spread and can be difficult to displace, even when it compromises collective cooperation and even though it makes a population vulnerable to invasion by defectors. We discuss the implications of our results for the prevalence of stereotyping and for reputation-based cooperation in structured populations.