Lecture Note 3: Discrimination and Learning

1 Distinguishing Statistical from Taste-Based Discrimination: List (2004) [for self-study if interested.] This study represents an ambitious, multifaceted and a bit complicated attempt to test whether discrimination occurs in a 'well-functioning'marketplace and, if so, to evaluate whether that discrimination is 'taste-based'or statistical (or a combination of both). The setting of the study is a sportscard trading market. Sportscard trading is a popular avocation, and apparently one on which List spends a great deal of time. In Part I of the experiment, List recruits volunteers at a sportscard show to buy (from dealers) and sell (to dealers) a 1989 Upper Deck Ken Gri¤y Jr. PSA graded " 9 " baseball card. Apparently, this is a valuable commodity; in the experiment, subjects typically paid over $100 for this card when buying from dealers. When selling the card to dealers, they typically received about $30 (so, there is quite a large buy-sell spread). There are many details to the experiment that we will not summarize. The main results of the initial experiment are evident in Table II through Table VI: 1. Initial o¤ers made by dealers to minorities (nonwhites, females and men over age 60) for transacting on the Ken Gri¤y card are inferior to initial o¤ers to white males. Inferior means high asking price when the subject is buying from the dealer and low o¤er price when the subject is selling to the dealer. 2. Discrimination appears much greater in the treatment in which subjects are selling the card to the dealer than in which they are buying (no theory for this). 3. Final o¤ers to minorities are not as inferior as initial o¤ers to minorities (relative to white males). 4. But, minorities spend more time bargaining to achieve similar results to white male— suggesting that they have to expend resources to overcome discrimination. 5. Experienced buyers/sellers of minority groups do about as well as white males, but only after having spent considerably more time bargaining. 6. Experienced dealers discriminate more than inexperienced dealers. 2 Thus, discrimination in this market is amply evident, and it is greater among more experienced dealers. But what is the nature of this discrimination? List distinguishes three possibilities: animus-based discrimination; statistical discrimination; and di¤erences in bargaining ability. The dictator game is a widely-used laboratory experiment. In this particular version, List gives dealers envelopes with …ve $1 dollar bills and informs the dealer the race/gender of the person …