Discrimination and Economic Expectations

Author:

Bazley William1ORCID,Bonaparte Yosef2ORCID,Korniotis George3ORCID,Kumar Alok3ORCID

Affiliation:

1. University of Kansas, Lawrence, Kansas 66045;

2. University of Colorado at Denver, Denver, Colorado 80204;

3. Miami Herbert Business School, Coral Gables, Florida 33146

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 of households: labor income and inflation. Using experimental data, we demonstrate that discrimination generates greater dispersion in household forecasts. It increases subjective expectations of income uncertainty by 8% and inflation uncertainty by 5%. The impact of discrimination is concentrated among racial/ethnic minorities, inducing 12%–16% greater variation in their income uncertainty expectations and 10%–12% greater variation in their inflation uncertainty expectations. Both psychological and emotional factors appear to influence the discrimination–economic expectations relation. This paper was accepted by David Sraer, finance. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.02276 .

Publisher

Institute for Operations Research and the Management Sciences (INFORMS)

Subject

Management Science and Operations Research,Strategy and Management

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