Getting Inequality Wrong

Many of us have a skewed picture of income distribution.

Some bad information.

Photographer: Brendan Hoffman/Getty Images

On most contentious issues, our perceptions often diverge from reality. It has been shown, for example, that people in many countries are bad at guessing the prevalence of immigrants, Muslims and teenage pregnancies, as well as murder rates, unemployment and population aging. The polling company Ipsos MORI, which discovered this flaw, even designed an "Index of Ignorance," showing that Italians and Americans are the least realistic among major democratic nations. 

QuickTake Income Inequality

Now, a paper for the U.S. National Bureau of Economic Research, written by the Moscow economist Vladimir Gimpelson and Daniel Treisman of UCLA, demonstrates that people cannot accurately gauge inequality in their societies. This finding could be particularly important because inequality perceptions often are a central determinant of  voter choice, and can even contribute to violent revolutions.

Ukraine's government was overthrown last year partly because of a widespread perception that a corrupt elite had hogged the nation's wealth, leaving the majority destitute. In fact, the country had one of the most equal distributions in the world: It was 14th out of 114 countries for which data were available in terms of equality after taxes and social transfers. In the picture below, Ukraine's diagram is Type C:

International Social Survey Project

Yet, when asked to choose a model for their country, fewer than 5 percent of Ukrainian respondents picked that diagram; 63 percent pointed to Type A. Of the 40 countries listed by Gimpelson and Treisman, Ukrainians were the least able to accurately guess their inequality level.

Poland, where equality was an important issue in recent presidential elections, didn't do much better: only 13 percent guessed the correct distribution after tax and social transfers.

A random choice would produce the correct answer 22.5 percent of the time. The U.S. doesn't exceed that by much: Americans guessed the correct distribution 29 percent of the time.

Gimpelson and Treisman show that most people are ignorant about income distribution using other measures, too. They are no good at guessing average salaries in different occupations and terrible at estimating what percentage of their compatriots live in poverty (it's  usually overestimated). And they have no idea where they are in the national income distribution: On average, 60 percent of owners of a second home  put themselves in the bottom half of the distribution, though a second home is an obvious attribute of relative wealth.

Meanwhile, the poor don't see themselves at the bottom of the income ladder: A majority of people who receive unemployment benefits and other such government assistance, as well as people who admit sometimes going without enough food, put themselves above the bottom two deciles, even though they belong in the last one.

Perhaps more important for political outcomes, people also are unable to understand how inequality is changing. In 2010, a Eurobarometer survey asked people in 27 countries whether poverty had decreased or increased in the previous three years. In all 27, the majority said poverty had been on the rise, though data show that was the case only in eight of the countries. 

People appear to be best informed about the actual level of inequality in countries where it's least acute. In egalitarian Norway, 61 percent of respondents correctly identified their country's  income distribution; 59 percent of people in Denmark did so.  Swedes and Danes are the most accurate in Europe at estimating poverty levels. Perhaps that's why these countries's political systems are among the most stable.

In most other places, incorrect perceptions can drive the political agenda, leading to violence and upheaval in the most extreme cases. "Revolution, repression and democratization might relate to predominant beliefs about inequality," Gimpelson and Treisman wrote. "But if potential revolutionaries are so uncertain about the size of the existing gap between rich and poor, we should not expect their political behavior to track the actual degree of inequality."

Whatever the reasons for the misperceptions -- media biases, ideology (people tend to overestimate inequality in former communist countries), a tendency to only look at one's own surroundings -- people are clearly unable to make correct decisions on the basis of such bad information. Considering that they are also wrong about divisive issues such as immigration, crime and public morality, ignorance may be among the biggest drivers of political preferences. 

Under such circumstances it's a blessing that the ideologies and policies of major parties in established political systems have converged toward the center. The recent explosion of populism, both on the right and left, in Europe and the political polarization in the U.S. are, on the contrary, reasons to worry: This trend is fed by bad information and a lack of curiosity.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

    To contact the author on this story:
    Leonid Bershidsky at

    To contact the editor on this story:
    Max Berley at

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