Inequality and Confidence, In the Lab

Abstract

Confidence can have important economic consequences. Existing research has largely focused on overconfidence, ignoring systematic variation in confidence. Building on sociological and social psychological research, this paper examines the impact of mere inequality on confidence in an incentive-compatible laboratory setting. Inequality was introduced into an otherwise-standard social learning experiment by randomly dividing participant into high-paying and low-paying groups. Control sessions were conducted without inequality. The results demonstrate that disadvantageous inequality undermines confidence, while being on the comfortable side of inequality increases confidence. Further, participants' perceived connection between own- and own-group performance, coupled with patterns in confidence, created discriminatory beliefs against the low-paid group. The observed inequality-confidence link provides an alternative explanation for self-reinforcing economic inequality independent of external discrimination.

Keywords: Confidence, Experiment, Inequality, Identity, Social Identity, Groups, Discrimination, Beliefs, Status

JEL Classification: D84, J71, Z13, A12, D03