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

By Guillermo Cruces, Ricardo Perez-Truglia, Martín Tetaz. Social Science Research Network, 2012

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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.

Subfields: Economics and Econometrics, Gender Studies, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/878648944caca784e98f29d0421506a96b16c4ea

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Citations in the corpus

The paradox of inequality: income inequality and belief in meritocracy go hand in hand (2019, background): “There is considerable evidence to suggest that people indeed underestimate the degree of inequality in their society—something that is true for Americans as well as citizens of European and Latin American societies (Osberg and Smeeding, 2006; Norton and Ariely, 2011; Cruces et al., 2013; Bucca, 2016”
Personal Experiences and Expectations about Aggregate Outcomes (2019, positive): “The numerical response to (10)Cruces et al. [2013] exploit similar variation to show that respondents are biased towards their position in the local income distribution when asked about their their position in the national income distribution.”
Designing Information Provision Experiments (2020, background): “…used to study how information affects policy attitudes, such as people’s demand for redistribution (Alesina et al., 2018c; Chen et al., 2016; Cruces et al., 2013; Fehr et al., 2021, 2019; Gärtner et al., 2019; Hoy and Mager, 2018; Karadja et al., 2017; Kuziemko et al., 2015), their support…”
Intergenerational Mobility and Preferences for Redistribution (2018, background): “…Norton, and Reich (2014) use experimental designs through online platforms to understand people’s views about fairness and redistributive preferences.5 Cruces et al. (2013) study how people form their perceptions of the income distribution and how this shapes their support for redistribution.”
Richer (and Holier) Than Thou? The Effect of Relative Income Improvements on Demand for Redistribution (2017, methodology): “We follow Cruces et al. (2013), and in the main analysis, respondents who underestimate (overestimate) their relative income by more than 10 percentage points are categorized as exhibiting a negative (positive) bias.”