An online experiment on thousands of U.S. residents shows that people who are made to realize that their earnings are lower than their self-assessed earning ability tend to attribute this to the unfairness of the economy. They tend to believe that other people also earn less than their abilities merit. The study was published in the European Journal of Political Economy.
People tend to be overconfident about their abilities in many situations. For example, a 1981 study in the US showed that 88% of respondents considered themselves safer than the median driver. In a similar manner, workers tend to overestimate their productivity and CEOs overestimate the returns on investment they are producing.
When it comes to earnings, overconfident people generally do not earn what they think they can. This means that they might be perceiving a negative gap between their economic results and their own evaluations of their abilities. But would the perception of this gap lead people to see the economy as unfair and support more income equality?
“Inequality is rising in the United States and other countries,” noted study author Daiki Kishishita, a junior associate professor at the Tokyo University of Science. “The existing studies have shown that the view on whether the economy is fair shapes the support for redistribution. We were interested in how people’s personal experience shapes the view whether the economy is fair. In daily life, people often complain that their income is too low compared with their earning ability. Motivated by this daily observation, we analyzed how this complaint shapes the perception about whether the economy is fair.”
Kishishita and two colleagues devised an experiment that was to be done in the scope of an online survey. The experiment was conducted on 4,697 MTurk workers from the US, who were each paid $1.00 for their participation.
At the beginning of the survey, each participant was asked questions on demographics, political attitudes (left, center or right-leaning), to disclose their household income, and to rate their earning ability. Respondents were asked to assess the relative location of their income relative to the income distribution in the US. If they answered incorrectly, survey would give them the correct result. This was done to make sure that all participants correctly assessed their relative income at the start of the experiment.
Based on the difference between the self-reported income of the participant and his/her self-rated earning ability, the authors of the study calculated a measure of the income-ability gap. 2,744 participants considered their incomes did not reflect their abilities correctly (61,4% of all participants). Of these, 1,526 considered their incomes to be lower than their abilities i.e., that their income-ability gap was negative (55% of the participants with the income-ability gap).
After this initial phase, participants were randomly assigned into one of the two groups. In the first group, participants were first reminded through a statement what their income and abilities are in evaluative terms (low, high, very high etc.). They were than asked to rate the gap between their income and their abilities (the income-ability gap). Researchers did this to make sure that the participants in this group will be aware of the gap going forward. The other group did not pass through this treatment, but proceeded directly to the final phase.
In the final phase, participants were asked to rate the unfairness of the economy and the preference for reducing income inequality. The former was done by asking participants whether incomes of ordinary people in the US are higher, equal to or lower than their abilities. The later was done by asking participants whether the US society should reduce income inequality and whether they would support government intervention to achieve this.
Authors report that realizing the negative income-ability gap through the experimental manipulation “increased the perceived degree of unfairness of the economy by 7.85 percent.” However, this manipulation did not increase the support for reducing income inequality.
“We expected that realizing the negative income-ability gap would increase support for reducing inequality. However, this was not supported by the data, which was pretty surprising,” Kishishita said.
There was no difference between left- and right-leaning participants in the effect of the experimental manipulation on their views regarding the unfairness of the economy, although the authors expected effects on left-leaning participants to be higher.
“People often complain that their income is too low compared with their earning ability, which can be regarded as overconfidence,” Kishishita told PsyPost. “This complaint induces them to think that the economy is non-meritocratic and unfair. However, this does not increase the support for reducing inequality. We hope that this finding will be helpful in understanding public opinion on inequality and redistribution.”
The study highlighted an important link between overconfidence and social perceptions, focusing on the views about economy. However, authors note that at least some of the respondents might have guessed correctly the goals of the study and provided answers in a way that they thought would satisfy the authors. To try to mitigate this fact, authors reanalyzed the data after excluding participants who could be identified as trying to satisfy desires of authors through their answers, but results remained the same.
“Our results would also be relevant for other countries because overconfidence is prevalent in many non-U.S. contexts,” Kishishita said. “However, we might expect some international differences because the view on whether the economy is fair differs across countries. Replicating our results in other countries is left to future work.”
The study, “Overconfidence, income-ability gap, and preferences for income equality“, was authored by Daiki Kishishita, Atsushi Yamagishi, and Tomoko Matsumoto.