How costly are cultural biases?

Francesco D'Acunto, Pulak Ghosh, Rajiv Jain and Alberto G. Rossi

No 34, LawFin Working Paper Series from Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin)

Abstract: We estimate the cost of cultural biases in high-stake economic decisions by comparing agents' peer-to-peer lending choices with those the same agents make under the assistance of an automated robo-advisor. We first confirm substantial in-group vs. out-group and stereotypical discrimination, which are stronger for lenders who reside where historical cultural biases are higher. We then exploit our unique setting to document that cultural biases are costly: agents face 8% higher default rates on favored-group borrowers when unassisted. The returns they earn on favored groups increase by 7.3 percentage points when assisted. The high riskiness of the marginal borrowers from favorite groups largely explains the bad performance of culturally-biased choices. Because varying economic incentives do not reduce agents' biases, inaccurate statistical discrimination-unconscious biased beliefs about borrowers' quality-can explain our results better than taste-based discrimination.

Keywords: Trust; Social Capital; Discrimination; Cultural Norms; Robo-Advising; Biased Beliefs; Inter-ethnic Conflict; Social Conditioning; Religion; Caste (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-evo, nep-exp, nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/261464/1/1810743052.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:lawfin:34

Access Statistics for this paper

More papers in LawFin Working Paper Series from Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().