Discrimination is known to lead to disadvantaged outcomes for the community and those who experience it, due to choices made by those who discriminate. However, a key gap in economics research is the lack of evidence on the effects of discrimination on individual decision making e.g. insurance choices, jobs, financial investments, etc. We aim to fill this gap by conducting an experiment that simulates real world discrimination and examines how people make financial decisions following the discrimination.
We find that experiencing discrimination does affect financial decisions. This effect is seen in situations where the probability of success is unknown and not seen when it is known. Furthermore, this result is more prominent in men than woman and was unaffected by having more initial wealth.
Since discrimination can alter decision making, it may be a contributing factor to the cycle of poverty. More research is required into how discrimination can alter decisions, and how we can help those experiencing discrimination make better financial decisions.