Income deciles vs. prototypes: How do people estimate economic differences?

Authors – Kris-Stella Trump, Nathalie Giger.

Abstract :

Recent research has pointed to the political importance of subjective perceptions of inequality in shaping individual-level preferences for redistribution. In this paper, we use novel survey data from the Konstanz Inequality Barometer (waves 2020 and 2022) to further analyse biases in perceptions of income and their political consequences. The data includes about 6,000 respondents per wave for the case of Germany. Our focus is on the association between ideological worldviews and biased perceptions. Our dependent variable is the difference between an individual’s objective position in the distribution of incomes and her self-perceived position (i.e. a measure of bias in perceptions).

In a first step, we confirm previous research in identifying a strong tendency towards the middle of the income distribution, i.e. richer individuals tend to underestimate their relatively high position, whereas poorer individuals overestimate their relatively low position.

In a second step, we explore individual-level determinants of income perceptions. Here, we focus on the association between individual ideological predispositions and perceptions biases. While acknowledging the observational nature of our data, we posit that there are plausible theoretical reasons to assume that ideology shapes perceptions of income rather than vice versa. Using respondents’ left-right self-placement, we do not find any statistically significant association. However, when using a more differentiated two-dimensional measure of ideology, we identify robust and significant associations. More specifically, we find that individuals with a socially conservative ideology are more likely to underestimate their relative income position, i.e. they perceive themselves to be worse off than they are. By contrast, individuals subscribing to a rightist position on the economic ideology scale are more likely to overestimate their relative position. These variegated effects of the two ideological dimensions explain why the broader left-right ideology remains weakly connected to income perceptions.

In the final step of the analysis, we explore potential political consequences of biased income perceptions in terms of individual vote intention. Even after controlling for both ideological dimensions, we find that individuals who underestimate their relative income position are more likely to vote for the right-wing populist party AfD and the far-left party Die Linke or to abstain from voting altogether.

These findings are replicated in the 2022 wave of the data and hold after controlling for a broad set of socio-economic background factors and differences between localities. Overall, they indicate that biased income perceptions might fuel populist support and political apathy in the broader population.