(Mis)perceptions of inequality

Abstract

Laypeople's beliefs about the current distribution of outcomes such as income and wealth in their country influence their attitudes toward issues ranging from taxation to healthcare - but how accurate are these beliefs? We review the burgeoning literature on (mis)perceptions of inequality. First, we show that people on average misperceive current levels of inequality, typically underestimating the extent of inequality in their country. Second, we delineate potential causes of these misperceptions, including people's overreliance on cues from their local environment, leading to their erroneous beliefs about both the overall distributions of wealth and income and their place in those distributions. Third, we document that these (mis)perceptions of inequality - but not actual levels of inequality - drive behavior and preferences for redistribution. More promisingly, we review research suggesting that correcting misperceptions influences preferences and policy outcomes.