Americans Are Terrible at Estimating Income Inequality

In some surprising ways.

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Reuters

Income inequality is an abstract idea, measurable in many ways. And so perhaps it's not surprising that Americans are terrible at estimating the true extent of the problem (or how fast it's grown with time).

The question, after all, requires several mental leaps: from our own income, to a sense of where we fit on the national scale, to an awareness of the outer poles of that distribution. There are some serious math and reasoning skills required here.

You may be surprised, though, by exactly how – and how consistently – people get this wrong: A new study in the journal Psychological Science from researchers at St. Louis University and the University of Florida found that most people think income inequality in America is far worse than it actually is. We're good at estimating how much people at the bottom of the income ladder make. But we're awful at grasping the top. As a result, we have a distorted sense of one of the most pressing public policy problems of our times.

That's not to say that income inequality doesn't exist. It does, to real proportions. And it's worsened over the last 50 years. But a comparison of actual census data and the math in our heads suggests that we're at least a little better off than we think. This is particularly true for liberals.

"Both the left and right had these distorted perceptions," says John Chambers, an assistant professor of psychology at St. Louis University, who co-authored the paper with Florida's Lawton Swan and Martin Heesacker. "It was just that liberals distorted it slightly more."

Previous research on the psychology of inequality has produced conflicting results. That's because how you ask people about the problem determines how they perceive it (this is true of many thorny topics, including climate change). To resolve this, this new research asked narrowly about "income," instead of the more nebulous "wealth." And the study framed the questions to several hundred survey respondents on Mechanical Turk in multiple ways.

This first chart shows the responses when people were asked to estimate what percentage of American households live within each income bracket:

"Better Off Than We Know: Distorted Perceptions of Incomes and Income Inequality in America," by J. Chambers et al in Psychological Science

People consistently overestimated the number of households making less than $35,000 and underestimated the number making more than $75,000, including when the question was broken down by race. People believed that nearly half of all American households (48 percent) earn less than $35,000 per year. The real answer is 37 percent.

Participants were also asked where they believed the income cutoff for the top 1 percent of households was in 2010: $380,354 or $681,649. In all, 76 percent of respondents went with the higher number. They were wrong. A much larger share (63 percent) got this question right about the bottom 1 percent (it's $3,517).

"The funny thing is they were surprisingly accurate about the lower-income individuals," Chambers says. "It’s just that they were vastly, vastly inaccurate about the wealthy."

In part, this may be because most of us sit somewhere on the income scale closer to the bottom than the top. The median household income in America is about $52,000. That's conceptually a lot closer to $30,000 than $300,000. And we tend to have more exposure to people like us, or those a little worse off, than those who make much more than we do. That means we're not all that great at thinking about who sits at the top, or how much they make.

"When people think about the wealthy, they oftentimes think of the most extreme, atypical examples, the Bill Gates, the Paul Allens of the world, the Oprah Winfreys, the billionaires, not realizing those are the exceptions and not the rule," Chambers says. In reality, the 20 percenters are just doctors or professors (or, in same cases, us). When Chambers and his colleagues asked people to guess what they thought the top 20 percent made, on average, people went with about $2 million. It's more like $169,000.

But what about inequality itself? One way to conceptualize it is to consider how much more the top 20 percent make compared to the bottom 20 percent. Looking at average (not median) incomes by quintile, the richest 20 percent made 11.13 times as much as the poorest in 1967. Participants in the study were told this, and then asked to estimate how the margin had changed over each decade since then. By 2010, people believed on average that the top fifth of the population was now making more than 30 times as much as the bottom fifth. By this metric (admittedly one of many possible ways to measure inequality), the actual margin is more like 15.5 times as much.

The gap between these two historic trajectories – the one in our minds, and the one in Census data – is illustrated at right.

Why does the difference matter? It's arguably unfair to expect most Americans to get this right. On the list of basic civics questions we might expect the average person to answer, the ratio of top earners to bottom earners on the American income spectrum is probably pretty far down the list. But our perception of the scale of inequality influences how we think the country should address it (no wonder that liberals, who believe the problem is larger, would like to see policymakers do more about it).

Or, if we consider these results another way, advocates eager to convey the challenge of income inequality have certainly succeeded in penetrating the American psyche.

Top image from an Occupy Wall Street protest in New York City in 2011: Lucas Jackson/Reuters

About the Author

  • Emily Badger is a former staff writer at CityLab. Her work has previously appeared in Pacific StandardGOODThe Christian Science Monitor, and The New York Times. She lives in the Washington, D.C. area.