Not so wise: median estimates around the globe underestimate income inequality

A recent study by Michael Norton and Sorapop Kiatpongsan finds that for all countries studied median estimate of income inequality is much lower than reality:

In their study, Norton and Kiatpongsan asked about 55,000 people around the globe, including 1,581 participants in the U.S., how much money they thought corporate CEOs made compared with unskilled factory workers. Then they asked how much more pay they thought CEOs should make. The median American guessed that executives out-earned factory workers roughly 30-to-1 — exponentially lower than the highest actual estimate of 354-to-1. They believed the ideal ratio would be about 7-to-1.

“In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further from reality than those underestimates,” the authors write.

Americans didn’t answer the survey much differently from participants in other countries. Australians believed that roughly 8-to-1 would be a good ratio; the French settled on about 7-to-1; and the Germans settled on around 6-to-1. In every country, the CEO pay-gap ratio was far greater than people assumed. And though they didn’t concur on precisely what would be fair, both conservatives and liberals around the world also concurred that the pay gap should be smaller. People agreed across income and education levels, as well as across age groups.

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8 Responses

  1. It is not a misperception by those polled, but of those doing the polling, because for most people “income” is equated with consumption, not figures on a financial statement. The upper 1% get to play games in which performance is denominated in debt instruments, like federal reserve notes, but they don’t consume that much more. Most of their “income” is just a way to keep score on their investment speculation.

    As long as the basic needs of people are satisfied, that is equality enough. Having much more to consume is not good for most people, causing them to become decadent and irresponsible.

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  2. Most people know very well what income and consumption are.

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  3. Give them tests to find out. I have, informally. You would be shocked at the depth of ignorance of most people, which is why income is so unequal.

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  4. Thanks for sharing your informal knowledge. Alleviating my ignorance may help increase my income somewhat.

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  5. What is the relevance of this post to sortition? Most of the survey evidence you bring to our attention is on the gap between public preferences and policy outcomes (on a small range of issues) in election-based political systems, but I wasn’t aware that CEO pay levels were set by politicians (who are, of course, paid much less than corporate executives). If electoralism were replaced, as you advocate, by sortition, would the result be that pay levels are then set by (allotted) politicians? That would mean the end of free-market economics, so is that the intention of your post? The only other possible relevance is the Ignorance of Crowds, hardly something to celebrate on this forum. My explanation, as you might suspect, is that the widespread ignorance uncovered by this poll indicates that it is not viewed by the public as as a particularly salient issue, people being more concerned with what they earn themselves and refusing to see the distribution of income (in the commercial sector) as a zero-sum game.

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  6. Interestingly, the median perceived inequality is not only a gross underestimate, it is also almost a perfect function of the median ideal:

    The correlation between logs of the ideal and perception is 95%.

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  7. But what is the relevance of this to a blog dedicated to the study of sortition?

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  8. […] recent international study of inequality by Michael Norton and Sorapop Kiatpongsan was already mentioned here for its findings about how uninformed the public was about matters of public policy. The study […]

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