Stereotypes, Underconfidence and Decision-Making with an Application to Gender and Math

We study the effects of the presence of a negative stereotype on the formation of self-confidence and on decision-making in achievement-related situations. We take into account not only consumption utility but also psychological utility (ex-ante ego utility and ex-post disappointment/elation). We show that any stereotype of lower ability (in the form of biased interpretation of success and failure in terms of ability) leads to gaps in confidence, in participation in risky/ambitious options and in performance. Furthermore, we show how the stereotype survives and even gets reinforced. Considering gender and mathematics, we are able to explain the lower self-confidence of girls in mathematics, their underrepresentation in STEM fields, as well as their choices of less ambitious options and lower performance