Discussion paper
DP19514 Discrimination and Preference Primitives
We examine the impact of perceived social discrimination on U.S. households' preferences, focusing on key aspects of prospect theory. Utilizing both field and experimental data, we find that perceiving discrimination increases risk tolerance, decreases loss aversion, and excessively distorts objective probabilities. These effects are primarily observed in racial/ethnic minorities, with no significant impact on White individuals. Emotional mechanisms, particularly anger, play a role in transmitting the effects of discrimination on preferences. Overall, our findings underscore how social factors, such as discrimination, can systematically shape fundamental preferences, and ultimately influencing economic decision-making.
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