Statistical discrimination when group members are aware of their stereotype: Learning from David Hume and Adam Smith

Abstract

The founding contributions to the theory of statistical discrimination implicitly supposed group members unaware of how their choices influences their stereotype. Hume and Smith point out how small religious groups police their members' behavior evidencing awareness of stereotypical externalities. Did African-American legislators vote to impose a harsher penalty for using a drug favored by their constituents than what would be imposed on the chemically equivalent drug favored by others in awareness of stereotypical externalities? Newspaper discussions are full of concern for the cost of the stereotype on law abiding voters.