Inaccurate Statistical Discrimination: An Identification Problem

57 Pages Posted: 19 Jun 2019 Last revised: 23 Mar 2021

See all articles by J. Aislinn Bohren

J. Aislinn Bohren

University of Pennsylvania; Centre for Economic Policy Research

Kareem Haggag

Carnegie Mellon University - Department of Social and Decision Sciences

Alex Imas

University of Chicago - Booth School of Business

Devin G. Pope

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 20, 2021

Abstract

Discrimination, defined as differential treatment by group identity, is widely studied in economics. Its source is often categorized as taste-based or statistical (belief-based)—a valuable distinction for policy design and welfare analysis. How-ever, in many situations individuals may have inaccurate beliefs about the relevant characteristics of different groups. This paper demonstrates that this possibility creates an identification problem when isolating the source of discrimination. A review of the empirical discrimination literature in economics reveals that a small minority of papers—fewer than 7%—consider inaccurate beliefs. We show both theoretically and experimentally that, if not accounted for, such inaccurate statistical discrimination will be misclassified as taste-based. We then examine three alternative methodologies for differentiating between different sources of discrimination: varying the amount of information presented to evaluators, eliciting their beliefs, and presenting them with accurate information. Importantly, the latter can be used to differentiate whether inaccurate beliefs are due to a lack of information or motivated factors.

Keywords: Discrimination, Inaccurate Beliefs, Model misspecification

JEL Classification: D90, J71

Suggested Citation

Bohren, J. Aislinn and Haggag, Kareem and Imas, Alex and Pope, Devin G., Inaccurate Statistical Discrimination: An Identification Problem (March 20, 2021). PIER Working Paper No. 19-010, May 2019, Available at SSRN: https://ssrn.com/abstract=3406060 or http://dx.doi.org/10.2139/ssrn.3406060

J. Aislinn Bohren (Contact Author)

University of Pennsylvania ( email )

133 South 36th Street
The Ronald O. Perelman Center
Philadelphia, PA 19104
United States

Centre for Economic Policy Research ( email )

London
United Kingdom

Kareem Haggag

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Alex Imas

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Devin G. Pope

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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