TY - JOUR

T1 - Non-Bayesian Statistical Discrimination

AU - Campos-Mercade, Pol

AU - Mengel, Friederike

PY - 2021

Y1 - 2021

N2 - Models of statistical discrimination typically assume that employers make rational inference from (education) signals. However, there is a large amount of evidence showing that most people do not update their beliefs rationally. We use a model and two experiments to show that employers who are conservative, in the sense of signal neglect, discriminate more against disadvantaged groups than Bayesian employers. We find that such nonBayesian or “irrational” statistical discrimination deters high-ability workers from disadvantaged groups from pursuing education, further exacerbating initial group inequalities. Excess discrimination caused by employer conservatism is especially important when signals are very informative. Out of the overall hiring gap in our data, around 40% can be attributed to rational statistical discrimination, a further 40% is due to irrational statistical discrimination, and the remaining 20% is unexplained or potentially taste-based.

AB - Models of statistical discrimination typically assume that employers make rational inference from (education) signals. However, there is a large amount of evidence showing that most people do not update their beliefs rationally. We use a model and two experiments to show that employers who are conservative, in the sense of signal neglect, discriminate more against disadvantaged groups than Bayesian employers. We find that such nonBayesian or “irrational” statistical discrimination deters high-ability workers from disadvantaged groups from pursuing education, further exacerbating initial group inequalities. Excess discrimination caused by employer conservatism is especially important when signals are very informative. Out of the overall hiring gap in our data, around 40% can be attributed to rational statistical discrimination, a further 40% is due to irrational statistical discrimination, and the remaining 20% is unexplained or potentially taste-based.

KW - Faculty of Social Sciences

KW - statistical discrimination

KW - conservatism

KW - naive employers

KW - experiments

U2 - 10.2139/ssrn.3843579

DO - 10.2139/ssrn.3843579

M3 - Journal article

JO - SSRN Electronic Journal

JF - SSRN Electronic Journal

SN - 1556-5068

ER -