CAGE Work in Progress

Title: Disadvantage and Distorted Beliefs (joint with P Dalton and S Ghosal).

Abstract: We develop a dynamic theory of how structural disadvantage shapes outcomes through the interaction of cognitive constraints and psychological determinants of efforts. We relate locus of control, self-efficacy, and grit to perceived returns to effort, and study aspirations in an extension. Individuals differ in exogenous circumstances, such as class, caste, race, gender, or inherited wealth, which affect the payoff or likelihood of success from effort. Beliefs about returns to effort evolve only through effort itself. Disadvantage raises the belief threshold required to justify effort, making disadvantaged individuals more likely to stop trying before learning their true returns. External locus of control, low self-efficacy, and weak grit can therefore emerge endogenously. We distinguish standard traps, which arise even for farsighted agents, from behavioral traps, which arise under partial myopia. Cash transfers, subsidies, and access policies lower effort thresholds; psychological, role-model, and grit interventions sustain beliefs.