Previous literature on statistical discrimination explained stereotypes based on the existence of multiple equilibria, in which principals have different self-confirming beliefs about different social groups (Arrow, 1973; Coate and Loury, 1993). However, the literature has not provided an account of...

Economists have developed theoretical models identifying self-fulfilling expectations as an important source of statistical discrimination in labor markets (Arrow, 1973). The static models dominating the literature of statistical discrimination, however, may leave the false impression that a bad...