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People underestimate the income of the top 1%, researchers find

People selectively underestimate how rich the world's richest people are, according to a study. Increasing income inequality in many countries is driven by steep gains among the top 1% of earners. In the United States, support for policies that would redistribute wealth has not increased since the 1970s, even as the share of incomes held by the top 1% of Americans jumped from 10% to 19%.

Barnabas Szaszi and colleagues conducted four studies to explore how well people understand the wealth held by others. In one study, 990 US residents recruited online were asked to estimate the minimum annual household income thresholds of various percentiles of American earners.

Participants underestimated the income thresholds of the top 1% of earners but were more accurate when estimating income thresholds for lower percentiles. These results were replicated in a survey of 834 US citizens who were incentivized to guess accurately with the promise of cash rewards for accurate answers.

The study was in PNAS Nexus.

In two additional studies, participants were shown photos and income figures for members of a fictional society, which allowed the authors to manipulate the extent to which wealth was concentrated in the top 1%. Participants underestimated the average income of the top 20% but not the lower quintiles.

According to the authors, underestimation of the incomes held by the upper end of the income distribution could be caused in part by a phenomenon known as "scope insensitivity" in which people become less attuned to specific amounts, replacing specific amounts in their minds with a catch-all category such as "rich." For example, a billionaire earning one more million does not register the way a person earning $50,000 a year suddenly earning a million dollars would.