Subtle Discrimination



We propose a theory of subtle discrimination, defined as bias-driven discriminatory behavior without direct payoff consequences. We present a model in which candidates compete for promotion to a better job.  The principal is biased towards candidates from a particular group. When choosing among equally-qualified candidates, the principal subtly discriminates by breaking ties in a biased manner. Subtle discrimination matters because it distorts candidates' decisions to invest in human capital. The model generates several predictions: (i) discriminated agents perform better in low-stakes careers, (ii) human-capital-intensive firms offering high-stakes careers are more likely to become “progressive” or “activist,” (iii) market forces do not eliminate subtle discrimination, and (iv) standard tests for discrimination have no power against subtle discrimination.