Arnold Kling  

A Signaling Model of Consumer Behavior

Order and Disorder... Economics vs. Computer Science...

Kerwin Kofi Charles, Erik Hurst, and Nikolai Roussanov write,

we show that although, unconditionally, racial minorities and Whites spend approximately the same fraction of their resources on visible consumption, Blacks and Hispanics spend about thirty percent more on visible goods, after accounting for differences in permanent income. These expenditure differences are found within all sub-groups, except older households. We find that these racial gaps have been relatively constant over the past seventeen years. And, we show that spending on housing or differential treatment in the housing market cannot explain these patterns. Finally, the gaps are economically large: the absolute level annual dollar differential for visible consumption is on the order of $2300, which is a non-trivial quantity given Black and Hispanic average income.

They argue that this behavioral difference may be due to different ways of signaling status within different groups.

It seems to me that they might want to bring IQ into the analysis. It's not like that they aren't already out on a limb as far as potentially offending a lot of people.

Pointer from Alex Tabarrok, who adds his own interesting comments.

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