Working Paper: NBER ID: w25935
Authors: J. Aislinn Bohren; Kareem Haggag; Alex Imas; Devin G. Pope
Abstract: Discrimination has been widely studied in the social sciences. Economists often categorize the source of discrimination as either taste-based or statistical—a valuable distinction for policy design and welfare analysis. In this paper, we highlight that in many situations economic agents may have inaccurate beliefs, and demonstrate that the possibility of inaccurate statistical discrimination generates an identification problem for attempts to isolate the source of differential treatment. We introduce isodiscrimination curves—which represent the set of preferences and beliefs that generate the same level of discrimination—to formally outline the identification problem: when not accounted for, inaccurate statistical discrimination can be mistaken for taste-based discrimination, accurate statistical discrimination, or their combination. A review of the empirical discrimination literature in economics, spanning 1990-2018, reveals the scope of this issue. While most papers discuss and attempt to distinguish between taste and statistical discrimination, a small minority—fewer than 7%—consider inaccurate beliefs in the analysis. An experiment illustrates a methodology for differentiating between the three sources of discrimination, demonstrating the pitfalls of the identification problem while presenting a portable solution.
Keywords: Discrimination; Statistical discrimination; Taste-based discrimination; Labor markets; Identification problem
JEL Codes: D90; J71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inaccurate beliefs (D83) | misidentifying the source of discrimination (J79) |
| inaccurate beliefs (D83) | differential treatment (J79) |
| inaccurate beliefs (D83) | hiring outcomes (M51) |
| discriminatory wage offers (J79) | inaccurate beliefs (D83) |
| accurate information (Y10) | adjustment of discriminatory wage offers (J79) |