ON PREJUDICE

In: Scottish journal of political economy: the journal of the Scottish Economic Society, Band 53, Heft 4, S. 505-522

Abstract

ABSTRACTThis paper examines how prejudice biases an evaluation outcome. We also show that referring to past data, which leads to prejudice, can provide a better estimator for the quality of the object under evaluation, even if biased, in the sense that it reduces the mean squared error. However, in cases in which the quality of the evaluation depends on the referee's effort, as well as on his ability, prejudice aggravates the evaluation outcome by dampening his refereeing efforts, thus possibly yielding a worse estimator than no prejudice even in terms of the mean squared error. If evaluators possess prejudice, an individual's performance in the earlier stage of his career becomes more important, at least in the short run, thus creating an incentive to work harder in the earlier stage than in the later stage. This may provide an alternative explanation for cut‐throat competition in the earlier stage to the traditional signaling argument.