Home ยป How Rich Should the Rich Be?

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Rawls’ political philosophy principle, the Veil of Ignorance says that if you’re designing a society, you should do from the perspective that you will be randomly assigned a position in that society. For example: while Creative Anachronists all wish they were medieval nobles, in the real middle ages most people gathered muck for a living. It only makes sense to say “I wish I lived in the middle ages” if you were willing to bet at stiff odds that you’d be a noble instead of a peasant.

Krista pointed me to this study where some behavioural economists asked Americans to choose an income distribution from behind a Veil of Ignorance. I believe their quintile graphs are misleading, which invalidates the ideal they surveyed, so instead let’s consider if the population of the country were five people and their total wealth* was $100:

American ideal US actual Canada Sweden Communism
Alice $31 $84 $69 $36 $20
Bob $23 $11 $20 $20 $20
Carol $22 $4 $8 $18 $20
Dave $13 $0.2 $2 $15 $20
Eve $11 $0.1 $0.1 $11 $20

As behavioural economists, their interest is showing that Americans irrationally support government policies that maintain an income distribution they don’t prefer. However, from a rational perspective, all these distributions are equivalent! The expected payout from each bet is $20: in other words, Alice’s life is better than Bobs to the proportional chance of being Alice instead of Bob.

But in the real world people are not behind a Veil of Ignorance but rather they have incomplete information. The authors speculate that there are a number of reasons why Americans don’t support income redistribution:

  • they don’t know how relatively poor they are
  • they overestimate their chance of getting richer
  • they disapprove of or can’t agree on mechanisms to redistribute wealth (eg: taxes)
  • their political positions don’t reflect rational self-interest

* We’re talking wealth rather than income, so the reason Eve is so poor is that she has a lot of debt.

Written by Jared

October 1st, 2010 at 11:35 am

Posted in Uncategorized

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