Discrimination and Economic Expectations

29 Pages Posted: 29 Jul 2022

See all articles by William Bazley

William Bazley

University of Kansas

Yosef Bonaparte

University of Colorado at Denver - Department of Finance

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Alok Kumar

University of Miami - Miami Herbert Business School

Date Written: July 25, 2022

Abstract

This paper examines whether perceptions of discrimination affect the economic expectations of U.S. households. We focus on two forms of expectations that play a central role in economic and financial decisions: labor income and inflation. Using experimental data, we show that discrimination generates greater dispersion in individuals' forecasts. It increases subjective expectations of income uncertainty by 11% and inflation uncertainty by 5%. The impact of discrimination is concentrated among racial/ethnic minorities. They display 13-16% greater variation in their income uncertainty expectations and 11-12% greater variation in their inflation expectations. Together, these findings suggest that social factors such as discrimination systematically distort household expectations, which may lead to suboptimal financial decisions and generate persistent wealth differences across demographic groups.

Keywords: Economic expectations, discrimination, racial/ethnic minorities, inflation, income growth uncertainty.

JEL Classification: D14, D81, J15.

Suggested Citation

Bazley, William and Bonaparte, Yosef and Korniotis, George M. and Kumar, Alok, Discrimination and Economic Expectations (July 25, 2022). Available at SSRN: https://ssrn.com/abstract=4172430 or http://dx.doi.org/10.2139/ssrn.4172430

William Bazley

University of Kansas ( email )

3143 Capitol Federal Hall
1654 Naismith Drive
Lawrence, KS 66045
United States

Yosef Bonaparte

University of Colorado at Denver - Department of Finance ( email )

United States

George M. Korniotis

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

512B Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

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