Rationally Inattentive Statistical Discrimination: Arrow Meets Phelps

When information acquisition is costly but flexible, a principal may rationally acquire information that favors a “majority” group over “minorities” unless the latter are strictly more productive than the former (the relative size of the groups plays no actual role). Majorities therefore face incentives to in- vest in being productive to the principal, whereas minorities are discouraged from such investments. The principal, in turn, focuses scarce attentional resources on majorities precisely because they are likely to invest. Our results have welfare and policy implications, as they add to the discussion of affirmative action, as well as the empirical literature on implicit bias and discrimination in performance evaluation.