Biased Perceptions of Income Distribution and Preferences for Redistribution: Evidence from a Survey Experiment

TLDR: The authors examined how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups, and assessed the practical relevance of these biases by examining their impact on attitudes towards redistributive policies.

Abstract: Individual perceptions of income distribution play a vital role in political economy and public finance models, yet there is little evidence regarding their origins or accuracy. This study examines how individuals form these perceptions and posits that systematic biases arise from the extrapolation of information extracted from reference groups. A tailored household survey provides original evidence on the significant biases in individuals’ evaluations of their own relative position in the distribution. Furthermore, the data supports the hypothesis that the selection process into the reference groups is the source of those biases. Finally, this study also assesses the practical relevance of these biases by examining their impact on attitudes towards redistributive policies. An experimental design incorporated into the survey provides consistent information on the own ranking within the income distribution to a randomly selected group of respondents. Confronting agents’ biased perceptions with this information has a significant effect on their stated preferences for redistribution. Those who had overestimated their relative position and thought of themselves relatively richer than they were demand higher levels of redistribution when informed of their true ranking. This relationship between biased perceptions and political attitudes provides an alternative explanation for the relatively low degree of redistribution observed in modern democracies.

Figures

Figure 1. Illustration of differences between population and reference group income distributions

Figure 3. Distribution of bias in perception of own income decile, in number of deciles

Figure 2. Distribution of objective and perceived own income decile

Table 3. Biased perceptions of income distribution and preferences for redistribution: Experimental results.

Table 1. Objective income decile, perceived own income decile and bias by quintile of objective income

Table 2. Determinants of perceived own income decile

Frequently asked questions

Q1. What are the contributions mentioned in the paper "Biased perceptions of income distribution and preferences for redistribution: evidence from a survey experiment" ?

In this paper, the authors explore the causes and consequences of systematic biases in individuals ' perceptions of aggregate income distributions and find that the bias is significantly correlated with the respondent 's relative position within the reference group ( as proxied by area of residence ). 

Q2. What are the future works in "Biased perceptions of income distribution and preferences for redistribution: evidence from a survey experiment" ?

The 27 Olin Wright ’ s ( 2009 ) discussion of false consciousness states: “ Ideology is seen as preventing workers from understanding the nature of their oppression and the possibilities of its transformation. Further research could focus on the impact of biases and information on actual behavior – for instance, on charitable donations or on voting patterns. Moreover, the results in this paper could originate in either limited information or limited cognitive ability – further research could disentangle the source of the observed biases in distributional ( and other ) perceptions. ” 25 results in this paper support Romer ’ s ( 2003 ) discussion of the possible welfare improving effects of subsidizing information, and Besley ’ s ( 2007 ) remarks about the potential of information providers for improving policies, although the impact of the biases in the efficiency of redistribution should also be considered ( Acemoglu and Robinson, 2005 ), The role of misconceptions in political economy has been studied before ( Romer, 2003 ; Slemrod, 2006 ). 

Q3. What is the role of misperceptions in political economy?

More generally, concepts such as inequality, self-interest and the median voter can be adapted in their application to political economy outcomes when misperceptions and misconceptions play a role. 

Q4. What does the inclusion of control variables do?

As in other small-sample experimental studies, the inclusion of control variables reduces the variability of the error term, which increases the statistical power of the significance test of the treatment effect. 

Q5. What is the role of the income distribution in the determination of policies?

The shape of the income distribution plays a key role in the determination of policies with redistributive components (such as social security, health care, government transfers and taxation) in political economy and public finance models. 

Q6. What is the effect of providing consistent information about the income ranking on individuals’ attitudes towards redis?

If those individuals are purely selfinterested, providing them with consistent information about their income ranking would make them oppose, rather than favor, the redistributive policy. 

Q7. What are the ways of recovering subjective distributions for acontinuous variable such as income?

There are several ways of recovering subjective probability distributions for acontinuous variable such as income, which include eliciting quantiles, moments or points of the distribution (see Manski, 2004). 

Q8. What is the role of the cognitive distortions in political economy?

The absence of effective struggle for socialism, then, is at least in part explained by the pervasiveness of these cognitive distortions. 

Q9. What is the effect of the provision of information on the stated preferences of those with negative biase?

If individuals know their true rank in the distribution but misreport it in the survey (because of embarrassingly low or high relative levels) or report focal-point answers because of a lack of interest, the provision of information should have no effect on their stated preferences, since they already have this unbiased estimate.