Social and political polarization is an important source of conflict in many societies. Understanding its causes has become a priority of scholars across disciplines. We demonstrate that shifts in socialization strategies analogous to political polarization can arise as a locally beneficial response to both rising wealth inequality and economic decline. In many contexts, interaction with diverse out-groups confers benefits from innovation and exploration greater than those that arise from interacting exclusively with a homogeneous in-group. However, when the economic environment favors risk aversion, a strategy of seeking lower-risk in-group interactions can be important to maintaining individual solvency. Our model shows that under conditions of economic decline or increasing inequality, some members of the population benefit from adopting a risk-averse, in-group favoring strategy. Moreover, we show that such in-group polarization can spread rapidly to the whole population and persist even when the conditions that produced it have reversed.
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