© The European Bank for Reconstruction and Development, 2005.
Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Economics of Transition
Volume 13 (3) 2005, 445–472
Blackwell Publishing, Ltd.Oxford, UKECOTThe Economics of Transition0967-0750© The European Bank for Reconstruction and Development, 20057Original Article
How Belief Systems and Mistrust Shape Responses To Economic IncentivesHoff and Pandey
Opportunity is not everything
How belief systems and mistrust shape
responses to economic incentives
Karla Hoff and Priyanka Pandey*
The World Bank, E-mail: firstname.lastname@example.org or email@example.com.
We experimentally investigate in village India how belief systems that hierarchize
social groups affect the groups’ responses to economic opportunities. Earlier we
found that making caste salient hurt low caste performance both absolutely and
relative to the high caste’s. To examine the possible role of mistrust, we manipulate
the scope for discretion in rewarding performance. When offered a gamble in which
success mechanically triggers rewards, making caste salient has no significant effect.
Instead, it is in the case with scope for discretion that making caste salient creates
a large caste gap in the proportion of subjects who refuse the gamble.
JEL classifications: C90, O17, Z13.
Keywords: Social norm, experiment, caste, inequality.
We are grateful for helpful comments to participants in seminars at MIT and Boston University and at the
MacArthur Norms Network and the Cornell-MIT-LSE Conference on ‘Behavioral Economics, Public Economics
and Development’. We thank Ken Sokoloff for helpful comments on an early draft, and an anonymous referee
for many constructive suggestions. We thank the World Bank and the MacArthur Network on Inequality
and Economic Performance for financial support.
Hoff and Pandey
Subordination of one people by another is undertaken not only by force; it also
has a cultural component. This suggests the possibility that when the coercive struc-
tures that enforce subordination are dismantled, the cultural beliefs remain and
play a role in making inequality persistent. In this paper, we use the caste system
of India as a setting in which to experimentally investigate that possibility.
Historians at least since Arnold Toynbee (1934) have noted that the dominance
of one social group over another sets in motion a process of cultural distancing and
hierarchizing. A case in point is Latin America, in which
‘[t]he mere act of extending a claim of possession over American Indians
. . . changed Spaniards’ representation of Indians’ nature. The signs of civility
and of shared humanity marveled at by Spaniards in their first encounters
faded to insignificance after the formal act of possession . . .’ (Benton, 2002 p. 12)
As the structure of legal authority that enforces subordination is established, it
becomes intertwined with a belief system that represents the subordinate social
group as inherently inferior.
That belief system may continue to shape social iden-
tities, perceptions, and expectations long after state-sanctioned mechanisms of
subordination have been dismantled. In many parts of the world, high inequality
between social groups, which historical legal barriers to equal opportunity helped
to create, has indeed persisted long after the most debilitating forms of discrimina-
tion have ended.
This has led some scholars to ask whether and, if so, by what
mechanisms, belief systems contribute to the persistence of group inequality.
There are many possible channels of influence from belief systems to persistent
inequality. One is statistical discrimination: under some circumstances, employers’
prior beliefs in group differences (where none inherently exist) are self-fulfilling (a
review can be found in Arrow, 1998). Another is stereotype threat or social identity
Many studies have documented that when a particular social iden-
tity is made salient, performance in a domain that is stereotyped is altered in the
direction predicted by that stereotype.
Past research on socio-cultural influences
Detailed historical studies of this process – which includes both spontaneous elements alluded to in the
quotation above by Benton, and also a deliberate role by the dominant group in myth-making – are Lorcin
1995 (on Algeria) and Dirks 2001 (on India).
Deep economic divides persist between blacks and whites in the United States (Loury 2002, Appendix),
between former ‘untouchable’ castes and all other castes in India (Desphande, 2002), and between indigenous
groups and non-indigenous groups in Latin America (Psacharopoulos and Patrinos, 1994).
In a remarkable and well-known study (Steele and Aronson, 1995), black and white college students in the
United States were asked to take a test composed of items from the verbal Graduate Record Exam (GRE). In
the control condition, the subjects were asked to fill out a questionnaire indicating their major, gender, and
other variables (but not race). In another condition, they were asked to also indicate their race. This simple
manipulation – evoking the race of the person – elicited conformity to the US stereotype of blacks as less
intelligent than whites. The SAT-adjusted mean scores of the blacks were far worse than those of the whites in
the race-prime condition, whereas in the no-race-prime condition their scores slightly exceeded those of whites.
How Belief Systems and Mistrust Shape Responses To Economic Incentives
on performance has focused on self-stereotyping.
In this paper, we consider an
additional way that a belief system that represents a social group as inherently
inferior might be self-fulfilling: belief systems may lead individuals to expect their
efforts to be rewarded in a biased way; mistrust then undermines motivation. This
leads to the hypothesis that, for a social group viewed as inferior, making social
identity salient would have a larger effect on behaviour when there is scope for
discretion in evaluating and rewarding performance than when there is no discre-
tion. No such difference would be observed for the social group that is not stigma-
tized. This is indeed consistent with the findings that will be presented below for
low- and high-caste individuals in India.
We should note, at least parenthetically, that an expectation of bias by the target
of a stereotype would be rational in light of the experimental evidence on the effect
of stereotypes on perception. In their review of the literature in cognitive psychology,
Hamilton and Sherman (1994) find that
‘The perceiver is more likely to attend to and notice stereotype-consistent infor-
mation, to make stereotype-consistent inferences, to recall stereotype-consistent
information, and so on. The overall consequence is that the perceiver “sees” a pattern
of information that seems to provide evidence for the “validity” of the beliefs
that themselves influenced the way the information was processed’ (p. 48).
‘In total, these various processes demonstrate that one of the primary functions
of stereotypes is self-maintenance’ (p. 37).
Stereotypes thus appear to serve as cognitive structures that guide information
processing in a self-confirmatory way.
One exception is Cohen and Steele (2002). They find that ‘barriers of mistrust’ affect the way that targets
of negative stereotypes experience social interactions.
A recent experiment by Stone, Perry and Darley (1997) provides a nice example. Their title captures the main
finding: ‘White men can’t jump: Evidence for the perceptual confirmation of racial stereotypes following a
basketball game’. In the experiment, all participants (who were white) listened to the same running account
of an athlete’s basketball performance on the radio. Half the participants were led to believe that the target
player was white, and half that he was black. A survey that the participants filled in after the end of the radio
broadcast indicates that information was less likely to be absorbed if it was discordant with the prevailing
US stereotypes of blacks as poor intellects but strong athletes compared with whites. The white target player
was perceived as exhibiting less natural athletic ability but more ‘court smarts’, whereas the black target player
was perceived as exhibiting fewer court smarts but more natural athletic ability. These conflicting beliefs
were generated through nothing more than manipulating the beliefs of viewers about the racial identity of the
A recent study of the effect of stereotyping on judgment finds that prison inmates with more Afrocentric
features receive harsher sentences than those with less Afrocentric features, controlling for race and criminal
history (Blair, Judd and Chapleau, 2004). A theory of the effects of bias on information processing is in Rabin
and Schrag (1999). A theory of the effects of ‘categorical cognition’ – judging individuals not by their own
characteristics but by the average characteristics of the group with which they belong – is in Fryer and
Hoff and Pandey
Two sets of results will be presented below. In Experiment 1 (summarized from
Hoff and Pandey, 2004), 321 low-caste and 321 high-caste junior high school male
students in north