17 November 2020

How well do people know their social position relative to others in society and how does it shape their views on fairness?

Answers are provided by CEBI researchers Kristoffer B. Hvidberg and Claus T. Kreiner together with Stefanie Stantcheva from Harvard University.

They provide new answers to these long-standing questions by combining survey-elicited perceptions on income positions and fairness views for a large, representative sample of prime-age people in Denmark with administrative data on their actual income positions, income histories, life events, and reference groups. This enables them to compare the income and perceived income positions reported by the respondents (in the survey) to the actual numbers (obtained from their tax returns) and to study social positions relative to many reference groups. These groups are others from the same cohort, co-workers in the same firm or sector, former schoolmates, neighbors or people living in the same municipality, or people with same education levels. They also show how changes in social position affect fairness views by exploiting the past changes in social positions of respondents, quasi-experimental real-life events (unemployment, health shocks, or promotions) that shift social positions, as well as randomized information treatments that show people their actual social positions. Their three main findings are: First, people underestimate the degree of inequality by believing that others are closer to themselves than they really are, yet misperceptions are not that large. Second, fairness views on inequality covary strongly -- and more than political views -- with the current social positions of individuals. Multiple pieces of evidence point to a causal relationship. Third, people view inequality within their education group and within co-workers to be most unfair, but in these same dimensions people underestimate the degree of inequality most and lower-income people strongly overestimate their own positions.

You can read more on NBER.org here