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We examined how team demographic diversity influences students’ experiences and performance in a large undergraduate course. Using administrative records and survey data, we constructed a dissimilarity index capturing team-level diversity by gender, ethnicity, and student origin. Demographic dissimilarity negatively correlated with perceived team functioning but had a U-shaped relationship with academic outcomes—moderate diversity was associated with lower performance. We found heterogeneous effects by diversity type: ethnic diversity followed an inverted U-shape for team experience; gender diversity exhibited a U-shaped pattern; and origin diversity showed minimal impact on experience but benefited group assignment scores. These findings underscore the non-linear nature of diversity effects in teams and suggest the need for nuanced design and pedagogical strategies to foster equitable collaboration environments.