Discrimination with inaccurate beliefs and confirmation bias

• Incorrect beliefs and confirmation bias lead to persistent wage discrimination. • Negative stereotypes are not enough to have discrimination in the long run. • Reversals in discrimination are possible. • The same factors that generate discrimination can also produce segregation. • Discrimination is more pronounced in partially- than in fully-segregated occupations. We examine patterns of discrimination when employers hold incorrect beliefs about the relationship between group membership and productivity, and suffer from confirmation bias when updating their beliefs. As a result, employers do not correct them fully, leading to persistent wage discrimination. Negative stereotypes generate discrimination against minority workers upon entry to the labor market , but are not enough to have discrimination in the long run, and reversals in discrimination are possible. We also discuss whether interventions aimed at reducing discrimination would succeed if confirmation bias is an important source of discrimination, and consider segregation in an extension with heterogeneous employers.