Discrimination and Economic Expectations

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 .