Perceptions, biases, and inequality

Dyotona Dasgupta and Anuradha Saha

Journal of Economic Behavior & Organization, 2022, vol. 202, issue C, 198-210

Abstract: This paper introduces perceived self-efficacy beliefs in an overlapping generations model and studies the effects of behavioral anomalies on human capital investments and aggregate inequality. These beliefs are not inherent but based on a person’s socio-economic background. Ex ante children are homogeneous, but parents are biased about the returns to their children’s education. Based on parental education and job status, parents may be over or under confident but otherwise, they are rational. We witness spillover effects that shift the incentives to educate children from the pessimistic parents to unbiased parents. Biases may induce or hinder investment. Over investment by one parent type may even crowd-out investments of other parent types. We find interesting effects of biases on the aggregate economy when parental warm glow is not low.

Keywords: Behavioral inequality; Human capital investment; Behavioral bias; Intergenerational mobility (search for similar items in EconPapers)
JEL-codes: D91 E2 J62 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Perception, Biases and Inequality (2021)
Working Paper: The Glasses are Tinted: Self-Confidence and Poverty Trap (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:202:y:2022:i:c:p:198-210

DOI: 10.1016/j.jebo.2022.08.003

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