Discrimination and Economic Expectations

This paper examines whether perceptions of discrimination affect the economic expectations of U.S. households. We focus on two forms of expectations that play a central role in economic and financial decisions: labor income and inflation. Using experimental data, we show that discrimination generates greater dispersion in individuals' forecasts. It increases subjective expectations of income uncertainty by 11% and inflation uncertainty by 5%. The impact of discrimination is concentrated among racial/ethnic minorities. They display 13-16% greater variation in their income uncertainty expectations and 11-12% greater variation in their inflation expectations. Together, these findings suggest that social factors such as discrimination systematically distort household expectations, which may lead to suboptimal financial decisions and generate persistent wealth differences across demographic groups