Disadvantage and Beliefs

We study how structural disadvantage (e.g., race, class, gender) shapes the formation of subjective beliefs about the returns to effort. We formalize and distinguish between psychological constructs such as locus of control, self-efficacy, and grit, and study their response to structural disadvantage and policy interventions. In our model, individuals share the same (unknown) innate ability, and beliefs about success can only be updated through effort. However, agents fail to internalize the dynamic feedback between effort and belief formation. Structural disadvantage raises the threshold of belief required to justify effort, increasing the likelihood of falling into a pessimistic low-effort trap. We characterize the conditions under which psychological interventions that bound beliefs from below and enhance grit improve welfare, and when such interventions must be complemented by policies that relax external constraints to be effective.