A research paper about economic inequality in America has been making the rounds: “Building a Better America - One Wealth Quintile at a Time” by Dan Ariely, behavioral economist and best selling author (Predictably Irrational), with economist Michael Norton.
I am going to tell you why, contrary to what Ariely claims, the paper doesn’t say that “Americans Want to Live in a Much More Equal Country (They Just Don't Realize It)”. And hopefully there’s a general point here.
The researchers asked Americans about the distribution of wealth in the US. The respondants grossly underestimated it. They said, for instance, that the two bottom quintiles (40%) possessed 9% of the total wealth, while top quintile possessed 59%. The correct numbers are 0.3% and 84% (!).
Is this shocking? Not really. Surely no one expects people to memorize macro-economic variables. Or do we expect them to “estimate” wealth distribution? based on what?
Incidentally, why did N&A asked about wealth, with income inequality much more on the public mind? Wealth is latent. If I own my apartment and my neighbor rents, I may be much wealthier than her, but no one can see it. Income is more visible - even where salaries are not openly discussed.
It’s possible that people had income in mind when answering about wealth. Maybe they didn’t realize the difference, or they used income as a proxy for wealth. It’s telling to compare the survey answers above to the US income distribution - 11% to the bottom 40%, 51% to the top 20% (Census Bureau, table H-3).
Yes, the survey meticulously explained what wealth was. But do you expect people to know the wealth distribution, if you need to tell them what wealth is?
This point safely nailed, let’s move on to the more juicy part, where people were asked to imagine joining a new nation. When they joined this nation, they were told, they “would be randomly assigned to a place … so you could end up anywhere in this distribution.” They were asked to choose wealth distribution for their new country. The result: among three alternatives – total equality, the current American state of affairs, and that of Sweden – Americans of all stripes wanted Sweden (!).
People also had to construct their ideal wealth distribution for the US. Again – everybody constructed a distribution more egalitarian than the current one. In fact, Ariely writes, “the ideal distribution … was dramatically more equal than exists anywhere in the world.” (!)
I refuse to be shocked, again. We saw people can’t estimate the wealth inequality numbers. I claimed they didn’t even quite grasp the concept. How then is it meaningful to ask them about their ideal distribution? How isn’t it just one big garbage-in-garbage-out?
And when Americans pick a distribution “dramatically more equal” than anywhere on the planet, doesn’t that imply precisely that they have no idea what those numbers mean?
Ariely writes that the study “avoid[s] hot-button terms, misconceptions and the level of wealth people currently have”. But preconception and personal stakes transform the academic to something that pertains on real life. And it’s real life people have opinions about.
That last point is my general one. Questionnaires are bound to take things out of context. Testifies every question you have ever wanted to tick with “it depends”. Questionnaires tend to assume people have opinions about everything, opinions that can fit into the available answers. Personal experience again tells us how wrong this is. People who use questionnaires says this can be fixed with good planning and statistical analysis. Well, if it can, “Building a Better America” isn’t a great example.
There’s more. The paper sometimes simply replaces one bias with another. This doesn’t have much to do with the point I wanted to make, but I can’t resist including it anyway. So as a compromise the type is small.
First, joining the society in a random economic position is supposed to take away incentive (Ariely compares it to blind wine tasting). That’s silly. If you are going to get a random piece of a pie, your rational choice would be an equal distribution, so that you will never end up with a small piece.
And does the size of the pie matter? the economic justification for inequality is that it encourages economic activity and growth. In the survey, all the pies are the same size, an implicit direction to ignore this argument. A similar point was made by a right-wing commentator in the National Review Online. Unlike that commentator, I share Ariely’s social-democratic sentiments. The trick is to be able to think critically no matter what your feelings about the results are.