The theory successfully explains real-world behaviour, such as football fan behaviour. Club fans often feel negatively about the fans of other clubs. If your team is not doing well, your social identity suffers which can explain why fights occur- they are seeking to improve their social identity.
Sherif's study (1961) supports the theory- boys at a summer camp, when put into groups, became hostile to the out-group as soon as they were informed of their existence and before any competition was introduced.
Useful applications- if we can accept that prejudice stems from grouping, we coud tackle prejudice between groups by changing the group boundaries and creating one big in-group.
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