Perceptions of inequality: consequences for social networks, preferences, and trust

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The increase in income and wealth inequality in recent decades has provoked a lively public and academic debate about its consequences. A major concern in the debate is that the gains at the top income ranks come at the expense of the bottom 99 percent, which may have broad consequences on society. What are the implications of (rising) inequality on social networks and trust and cooperation? How does this depend on the perception of inequality and how does it interact with the impression that the current distribution of opportunities, income, and wealth is unfair? How do inequality perceptions affect individual preferences? Rigorous evidence on these questions is scarce but is key to understanding how individuals' behavior and decisions are influenced by inequality and how this affects policies -- ranging from taxation and transfer policies to education and health care spending -- which are defining inputs for the economic and social conditions of society. In order to provide such evidence, the proposed research combines two rather distinct fields of research -- individual decision-making and economic inequality -- and seeks to provide causal evidence of the impact of inequality on social networks, social and risk preferences, and trust. To sidestep endogeneity concerns, which are one of the main obstacles in the empirical inequality research, I will use data from a randomized controlled trial, run an experiment using a representative sample of the population, and conduct a laboratory experiment. The focus on individual decision-making will help me to better encompass different aspects of inequality, while different experimental methods allow me to manipulate and reliably identify the impact of income inequality and to exactly specify and test causal mechanisms. The results of the planned project could open new avenues of inequality research and provide important new insights needed as an input to improve and refine inequality research. In particular, it will help to design better targeted empirical inquiries and better focused theoretical models, as the findings can be used to rethink, revise, and narrow down hypotheses about the ramifications of inequality. Finally, the research program aims to inform the public debate by contributing causal evidence and a more differentiated picture about the consequences of inequality at the micro level.