Discrimination with inaccurate beliefs and confirmation bias

We examine patterns of discrimination when employers hold incorrect beliefs about the relationship between group membership and productivity, and suffer from confirmation bias when updating their beliefs. As a result, employers do not correct them fully, lead-ing to persistent wage discrimination. Negative stereotypes generate discrimination against minority workers upon entry to the labor market, but are not enough to have discrimina-tion in the long run, and reversals in discrimination are possible. We also discuss whether interventions aimed at reducing discrimination would succeed if confirmation bias is an important source of discrimination, and consider segregation in an extension with hetero-geneous employers. (c) 2023 Elsevier B.V. All rights reserved.