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Interpretive Evaluation: E↵ects of Confirmation Bias on the Retribution to Talent

Marcelo Denis Woo

No 4207, Working Papers from Asociación Argentina de Economía Política

Abstract: This work studies the e↵ects of confirmation bias on the retribution to unobservable talent in a competitive labor market. Under evaluation with confirmatory-bias, the candidate always exerts a positive level of ef- fort to influence information, but e↵ort decreases over time, converging to zero. While Bayesian beliefs converge at linear rate t to the true tal- ent, confirmatory-biased beliefs converge at an exponential rate 2t to a weighted average between talent and the initial prejudice. If initial beliefs are biased, then for any prior precision h0 > 0, confirmation-biased wages never converge to the talent, so the Retribution Bias is persistent, even with ad infinitum optimal signalling by the candidate. Thus, confirmation bias becomes a new source of market ine

JEL-codes: D8 J7 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2019-11
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Handle: RePEc:aep:anales:4207