We test for stereotyping—the exaggeration of representative traits—in a high-stakes economic environment. Using surveys administered among undergraduates at the Ohio State University as well as large-scale nationally representative data, we measure how U.S. first-year students perceive the relationship between college majors and occupations. We show that students greatly overestimate the likelihood that majors lead to their representative jobs (e.g., counselor for psychology, journalist for journalism). Using an implicit association test, we show that students associate majors with their representative careers and that these associations strongly predict belief biases, in line with a stereotyping mechanism. A simple equilibrium model of the labor market predicts that stereotyping reduces welfare by increasing misallocation, which we corroborate with correlational evidence on job/major mismatch. In a field experiment, we test a light-touch policy to reduce stereotyping and find significant effects on students’ intentions about what to study as well as the classes and majors they enroll in.

In many economic decisions, people estimate probabilities, such as the likelihood that a risk materializes or that a job applicant will be a productive employee, by retrieving experiences from memory. We model this process based on two established regularities of selective recall: similarity and interference. We show that the similarity structure of a hypothesis and the way it is described (not just its objective probability) shape the recall of experiences and thus probability assessments. The model accounts for and reconciles a variety of empirical findings, such as overestimation of unlikely events when these are cued versus neglect of noncued ones, the availability heuristic, the representativeness heuristic, conjunction and disjunction fallacies, and over- versus underreaction to information in different situations. The model yields several new predictions, for which we find strong experimental support.

Can access to a few hundred dollars of liquidity affect the career choice of a recent college graduate? In a three-year field experiment with Teach For America (TFA), a prestigious teacher placement program, we randomly increase the financial packages offered to nearly 7,300 potential teachers who requested support for the transition into teaching. The first two years of the experiment reveal that although most applicants do not respond to a marginal $600 of grants or loans, those in the worst financial position respond by joining TFA at higher rates. We continue the experiment into the third year and self-replicate our results. For the highest-need applicants, an extra $600 in loans, $600 in grants, and $1,200 in grants increase the likelihood of joining TFA by 12.2, 11.4, and 17.1 percentage points (or 20.0%, 18.7%, and 28.1%), respectively. Additional grant and loan dollars are equally effective, suggesting a liquidity mechanism. A follow-up survey bolsters the liquidity story and also shows that those drawn into teaching would have otherwise worked in private-sector firms.