The Point: People's perceptions about inequality don't match up with economists' measurements of inequality. Surveys tell us that people tend to underestimate the amount of inequality in their society. Furthermore, it seems that a person's preferences for redistribution are more closely correlated with their perceptions than they are with measured estimates of inequality.
The authors contend that such finding are extremely relevant in discussions that link specific types of political outcomes (redistribution, social unrest, etc) to inequality. Many existing theories that establish such a link assume that individuals can accurately perceive inequality. What happens if they can't?
The Quotes: "[W]hat if most citizens do not know whether they are relatively poor or relatively rich?...What if the masses have little notion of how much wealth the elites have accumulated and whether the gap is growing or shrinking? What if even the rich cannot gauge how strong is the motive for the poor to revolt? In such cases, the neat link between actual inequality levels and political outcomes evaporate." (2)
"In short, these surveys suggest that the rich tend to think they are poorer than they are, and the poor tend to think that they are richer than they are. Both believe they are closer to the national median than is, in fact the case." (19)
"If the public does not know how high inequality is, we should not expect the actual inequality level to predict policy preferences and political behavior. But perceived inequality could still be politically important."
Method & Data: In the paper, the authors are primarily focused on three questions:
Do people understand the level of inequality in their country?
Do people know their place in the distribution?
Do people know how inequality is changing?
To answer these questions, the authors turn to results from the International Social Survey Project (ISSP) - a survey conducted in 40 countries in 2009; the Life in Transition Survey (2010); the World Values Survey from from 2005-2009; the Pew Global Attitudes project. They also calculate their own GPI (a gini coefficient for perceived income).
A copy of the paper can be found here. Also see NBER Working Paper No. 21174 (May 2015)