CONCLUSION

As so often in economics, asking about the relationship between income inequality and individual attitudes looked to be a pretty simple question, but turned out to be remark­ably more delicate to answer.

The broad question addressed here is why individuals should care about the distribu­tion of income in a society. The first useful distinction is whether they figure in the soci­ety in question or not. In the former case, income inequality will have implications for both their own income and their income relative to others; this is the comparative view of the income distribution. In the latter case, individuals can evaluate a distribution of income dispassionately, as it were, as this distribution will have no implications for either their own absolute income or their relative income; this is the normative view of the income distribution.

As a broad conclusion, there is now a variety of types of evidence that are con­sistent with individuals caring about their income position relative to others. To that extent, individuals do indeed have social preferences. It is worth underlining the una­nimity that individuals dislike earning less than others. The “comparative” response to earning more than others remains open to debate. There may well be something of an asymmetry here, with the well-being advantage of earning more than others being smaller in absolute value than the well-being loss of earning less than others (a type of comparative loss aversion). However, the more extreme version of this aversion, with individuals actually disliking earning more than others remains unsettled. In general, the well-being effect of a rise in inequality under the comparative lens is ambiguous: Some people will become richer than those in their reference group, others will become poorer.

In contrast to these comparative findings, the happiness literature on the normative view of the income distribution has provided a wide scattershot of findings.

Our reading of the many empirical analyses is that others’ income most certainly does affect individual well-being, certainly in a comparative sense and very likely normatively too. At the same time, there are many qualifications to any broad-brush conclusion. First, the source of the income under consideration is key, with a consistent finding that indi­viduals are less accepting of income gaps between individuals that are seen to be undeser­ving. Second, individuals can have separate views of different income distributions: It is quite possible to be altruistic with respect to one group, but comparative with respect to another. In this sense, it is not clear that there is only one “attitude” to inequality. Nor is it clear that such attitudes are fixed over time. For example, preferences for redistribution depend (in a self-interested way) on the individual’s perceived position in the income distribution and on the degree of empathy toward others. Research in psychology has suggested that younger cohorts are more likely to rate themselves as above average (Konrath et al., 2011) and are less empathic (Twenge et al., 2012). What may have been unacceptable in the past in terms of the distribution of income may become anodyne in the future.

Research in this area has appealed to contributions from a variety of fields of research, both within economics and across the social sciences. It is striking how little these various fields communicate with each other. Any attempt to integrate at least some of the revealed preference, experiment, and happiness approaches would surely be welcome.

Individuals do have attitudes toward income inequality, whether these be stated, revealed, or measured physiologically or neurologically. To this extent, at least, man is a social animal. There is unlikely to be agreement any time soon about the “right” degree of inequality. This will be tied up with the societal extent of jealousy, altruism, fairness, and values. That many of these concepts are of such interest across the social sciences bodes well for Volume 3 of this Handbook.

ACKNOWLEDGMENTS

Thanks to Tony Atkinson and Frangois Bourguignon for their careful reading of our previous versions, and to Dimitris Alexander Mavridis for proactive research assistance. We are grateful to Dimitris Ballas, Christian Bjornskov, Frederic Carlsson, Alexandru Cojocaru, Aditi Dimri, Lucio Esposito, Francesco Farina, Ernst Fehr, Bob Frank, Carol Graham, John Helliwell, Barbara Jancewicz, Olof Johansson-Stenman, James Konow, David Masclet, Agnar Sandmo, Claudia Senik, Tim Smeeding, Jean Twenge, Bernard van Praag, Ruut Veenhoven and Katsunori Yamada for help and thoughtful comments.

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