We show that discrimination can occur even when it is common knowledge that underlying group characteristics do not differ and when employers do not prefer same-group candidates. When employers can judge job applicants' unknown qualities better when candidates belong to the same group and hire the best prospect from a large pool of applicants, the top applicant is likely to have the same background as the employer. The model has policy, empirical, and experimental implications. For example, the model predicts that "screening discrimination" is more likely to occur and persist in sectors in which underlying quality is important but difficult to observe, there are numerous applicants, interviewing (screening) is relatively cheap, and applicants have to acquire job-specific skills.

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An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him, to follow the behavior of the preceding individual without regard to his own information. We argue that localized conformity of behavior and the fragility of mass behaviors can be explained by informational cascades.

We show that discrimination can occur even when it is common knowledge that underlying group characteristics do not differ and when employers do not prefer same-group candidates. When employers can judge job applicants' unknown qualities better when candidates belong to the same group and hire the best prospect from a large pool of applicants, the top applicant is likely to have the same background as the employer. The model has policy, empirical, and experimental implications. For example, the model predicts that "screening discrimination" is more likely to occur and persist in sectors in which underlying quality is important but difficult to observe, there are numerous applicants, interviewing (screening) is relatively cheap, and applicants have to acquire job-specific skills.

An informational cascade occurs when it is optimal for an individual, having observed the actions of those ahead of him, to follow the behavior of the preceding individual without regard to his own information. We argue that localized conformity of behavior and the fragility of mass behaviors can be explained by informational cascades.