Appearance, Inferences about Credit Quality and Learning

<p>Appearance and personal characteristics, such as age, gender, ethnicity and the way a person presents himself have been shown to play a role in many economic exchanges. Various explanations have been proposed for this finding, ranging from ‘statistical discrimination,’ where such variables are surrogates for unobservable characteristics related to the quality of the counterparty, to ‘taste-based discrimination,’ where one or both parties experience disutility from interacting with people belonging to certain groups. This paper reviews the theoretical and empirical literature in this area and investigates whether individuals update their beliefs and attitudes toward such characteristics after they learn about outcomes.</p>