Status and Confidence, in the Lab

Jeffrey Butler

No 903, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: It is widely recognized that confidence can have important economic consequences. While most of the focus has been on overconfidence, systematic variation in confidence can imply systematic variation in economic outcomes. Intriguingly, sociological and social psychological research suggests that being on the wrong side of inequality undermines confidence. This paper examines the link between inequality and confidence in a controlled, incentive-compatible laboratory setting. Inequality was introduced into an otherwise-standard social learning experiment by randomly assigning half of the subjects into a "high-paying" group and the other half into a "low-paying" group. The pay differences were lump-sum, making the economic incentives across groups identical. I found a significant link between inequality and confidence: being on the positive side of inequality increased confidence, while being on the negative side of inequality decreased confidence, relative to control sessions without inequality. This inequality-confidence link provides an alternative explanation for the type of self-reinforcing inequality present in, for example, U.S. educational attainment data - but which is typically attributed to external discrimination. It can also explain some patterns in college attainment that are inconsistent with an external discrimination story.

Pages: 31 pages
Date: 2009, Revised 2009-04
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:0903

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