Experimental and Behavioural Economics - Dan McGee (Monash University)

Title: Stereotypes and Strategic Discrimination

Abstract: Stereotypes arise when individuals interact. Even when group differences are intrinsically meaningless and there is no inherent animosity between groups, strategic incentives lead agents to believe that visible differences mark differences in ability.  
Agents discriminate based on these beliefs, which collectively benefits these agents at the expense of the stereotyped, representing strategic discrimination. In environments of congestion, negative stereotypes cause crowding out of the stereotyped group, whereas in environments of public goods, positive stereotypes yield free riding. In equilibrium, the holders of the stereotypes incorrectly think these beliefs are commonly held, but in truth, the stereotyped group rejects their accuracy. Nevertheless, the gains these beliefs produce give an incentive for the holders to maintain their prejudices, even though strategic discrimination is costly to aggregate welfare.