This can lead to a distortion in the worker's beliefs resembling the classic 'omitted variable bias' from introductory econometrics. For each action, narrow inference fails to control for the other action dimensions. The agent then overestimates the effect of any particular skill on wages. (7/15)

In line with this, under narrow inference workers form beliefs about the wage gains from learning each skill separately. They compare the average wages of workers in the firm who have the skill in question vs those who do not. This is illustrated by the following DAG. (6/15)

I’m on the job market this year! My #EconJMP explores how to design incentives for people with limited understanding of the causal effects of their actions. I consider the implications of a form of bounded rationality I call 'narrow inference' in a principal-agent screening model. (1/15)