Inequality and Decision Making Initiative Is Detailed in Moss, Thaker, and Rudnick (2013)

1913 1923 1933 1943 1953 1963 1973 1983 1993 2003 2013 25

a Conference on 15 Inequality and 10 5 Top 1% Income Share in the U.S. (including capital gains) 1913–2014 Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, Decision Making The World Top Incomes Database, http://topincomes.g-mond.parisschoolofeconomics.eu 0

How does inequality influence individuals’ behavior and decision making, and how might this in turn shape broader social out comes?

The Tobin Project is accepting applications to present innovative, early-stage research at a conference exploring the effects of economic inequality on individual behavior and decision making. Successful applicants will present the results of their pilot studies and test their research designs with leading scholars at an invitation only, interdisciplinary conference, to be held August 4–5, 2016 in greater Boston. Authors of winning submissions will have the opportunity to apply for funding to support their pilot research. Junior scholars (doctoral students through assistant professors) who are selected to present work at the conference will also be considered for up to $20,000 in awards for final papers following the conference. (See page 2 for details of the application process.)

In recent years, income inequality in the United States has reached heights not seen since the Great Conference Depression. With inequality’s rise a national debate has emerged. Some observers characterize rising Advisory Board inequality as one of the greatest threats facing the nation, while others dismiss it as little more than a hiccup in the progress of American capitalism. Yet despite a great deal of careful work devoted to the Nancy Adler study of economic inequality, the consequences of inequality remain poorly understood.1 Lisa and John Pritzker Professor, Departments of Psychiatry and Pediatrics at the University Much of the research on inequality’s consequences has examined correlations between some aggregate of California, San Francisco measure of inequality (for example, the Gini coefficient) and a metric of macro-level performance or Marianne Bertrand well-being (for example, measures of economic growth, population health, or the frequency and severity Chris P. Dialynas Distinguished Service of financial crises). While this research has produced plausible hypotheses, it has not produced an Professor of Economics at the University of Chicago Booth School of Business academic consensus on the impact of inequality. We believe this may be in part because the research has not privileged the study of mechanisms that might explain how inequality shapes broader outcomes. Raymond Fisman Slater Family Professor in Behavioral Economic inequality may be having significant effects that are complex and subtle enough to defy Economics at Boston University detection at the macro-level, but it will be hard to know until scholars develop a deeper understanding of how inequality operates at the micro-level. Behavioral social science could play a critical role in Ilyana Kuziemko Professor of Economics at Princeton University building this understanding.2 Wendy Berry Mendes A group of leading scholars working with the Tobin Project has begun running experiments in this field Sarlo/Ekman Associate Professor of Emotion of inquiry. Their work has taken an encouraging step toward a deeper understanding of inequality and at University of California, San Francisco has generated lessons to inform future study. Yet, many important avenues of inquiry remain unexplored. David Moss We are organizing this conference to engage a multi-disciplinary community of scholars and stimulate Paul Whiton Cherington Professor of Business new work to advance and deepen this research agenda. Administration at Harvard Business School and Founder of the Tobin Project Michael Norton 1 This section draws heavily on language from Moss, Thaker, and Rudnick (2013), with permission. Harold M. Brierley Professor of Business 2 The argument motivating the Tobin Project’s Inequality and Decision Making Initiative is detailed in Moss, Thaker, and Rudnick (2013). Administration at Harvard Business School

1 Conference Overview The conference, to be held August 4–5, 2016 in greater Boston, will bring together scholars from across the social sciences to chart the future of a research initiative on inequality and decision making, which has been described as “the most promising direction in inequality research today.”3 Building off of foundational work already underway, the conference will provide a venue for a select group of creative researchers to discuss new and ongoing research in this area, and help to define the frontier of an exciting research program committed to understanding what President Obama has called “the defining challenge of ourime.” t 4

Application Process and Submission Criteria We seek proposals for new work that promises to further understanding of how inequality may influence individual behavior and decision making. We will accept proposals from faculty, post-doctoral fellows, and doctoral students from any discipline. Proposals are due by January 11, 2016. Authors of winning submissions will be contacted in late January, at which time they may apply for funding to defray direct research costs. Applicants whose proposals are accepted will be asked to pilot their studies, draft short discussion papers, and present their research at the conference. Junior scholars (doctoral students through assistant professors) who are selected to present work at the conference will also be considered for up to $20,000 in awards for final papers following the conference.

Research Design Proposal We encourage creative new studies utilizing any methods that can shed Proposals may be single- or multi-authored. Proposals should be concise light on potential mechanisms by which inequality affects society. Methods (2–4 pages) and should identify the key research question the applicants may include, but are not limited to, laboratory and field experiments, natural wish to pursue and outline the planned pilot work. A curriculum vita for each experiments, and surveys. author should be submitted with the proposal. Specifically, proposals should: Identify a research question that closely relates to the core goals of While we welcome proposals for studies of the potential effects of economic the conference. inequality in any context, we have identified a few leads that we believe are both under-studied and important to understand. (See pages 3–4 for details.) Identify a testable hypothesis or a series of related hypotheses about specific ways in which economic inequality may shape individual Financial Decision Making behavior and/or decision making. Behavior and Decision Making at the Top Propose a study to test these hypotheses and describe the essence of Political Decision Making the study design. Social Cognition Situate the proposed research in the relevant academic literature, Perceptions of Inequality particularly with respect to the hypothesized causal channel.

Selection Criteria Winning submissions will be those deemed most promising against the following criteria: The relevance of the research question to the goals of the conference: Does the proposed work hold promise for advancing our understanding of how and in what contexts inequality may affect individual behavior and decision making? The novelty and feasibility of the proposed study design: Does this proposal suggest a new and innovative research strategy that has a reasonable chance of success?

3 See “Rebooting Social Science” in the July-August 2014 issue of Harvard Magazine. 4 “Remarks by the President on Economic Mobility,” December 4, 2013.

The deadline for submissions is Januar y 11, 2016. Please direct submissions to [email protected]

2 Promising Directions for New Research

Financial Decision Making5

Does an individual’s position in the income distribution affect her choices elites. If the impact of inequality depends in part on the salience of income about borrowing or investment? Does the level of inequality in a person’s and wealth disparities, it’s possible that those at or near the top of the community alter his financial priorities? Does willingness to take financial economic ladder may be most affected. risks change as inequality rises or falls? Survey evidence suggests that those at the upper end of the income Financial decision making encompasses a broad array of behaviors and distribution exhibit distinctive social and economic policy preferences.11 cognitive processes, including many that stem from attitudes toward Do such preferences among the “merely affluent” (i.e., near the top) risk. Several studies have already demonstrated that one’s position in a change as the distance between them and the “truly wealthy” increases? distribution can influence financial risk taking: subjects in one study were The top of the income distribution is primarily occupied by an identifiable more likely to purchase lottery tickets when made to believe that their set of professional groups: corporate executives, lawyers, entrepreneurs, incomes were relatively low.6 Similarly, individuals placed into the bottom and financial, medical, entertainment, and real estate professionals.12 two positions of a distribution in a laboratory setting exhibited “last place Does rising high-end inequality particularly influence policy preferences aversion” and were significantly more likely than others to enter a risky or value orientation among these high-earning professionals? lottery.7 If position in the distribution can affect financial decisions, might changes in the shape of the distribution likewise have an impact? Political Decision Making Shah, Mullainathan, and Shafir found that the poor may be more likely As inequality has increased in recent decades, why has there not been to over-borrow, even when faced with high interest rates, in part because a consequent increase in support for redistribution? Rational voter theory scarcity leads individuals to attend to immediate needs, neglecting less suggests that as inequality rises—and the number of voters who stand urgent but perhaps more important problems.8 Could certain types of to benefit from redistributive policies increases—the political pressure to inequality likewise impact how individuals allocate attention, in turn redistribute from the most affluent to the rest should increase.13 And yet, exerting similar or related effects on financial decision making? survey evidence suggests that support for redistribution in the U.S. has remained flat as inequality has grown.14 Behavior and Decision Making at the Top In addition to studying the link between inequality and redistribution, social As income inequality has increased over the last several decades, much scientists have scrutinized possible connections with other high-level of the movement has occurred in the upper reaches of the distribution. political variables, such as average voter turnout and total campaign Top earners have seen significant real income growth and received the contributions. However, relatively little attention has been paid to studying lion’s share of the gains.9 Similarly, “almost all” of the considerable how changes in inequality might affect political decision making at an increase in wealth inequality over the last three decades can be attributed individual level, which in turn could shape large-scale political outcomes. to “the rise of the share of wealth owned by the 0.1% richest families.”10 This is surprising because behavioral science offers many tools that would Americans in the middle and lower portions of the distribution may however seem well suited to such an inquiry. Examining whether individuals’ political be in the dark about many of these economic shifts, since they often inhabit preferences shift in the face of a changing income distribution could be different social circles and live in neighborhoods separated from economic an especially fruitful path to pursue.

5 Financial and political decision making as well as social cognition are outlined as potentially promising 11 Page, Bartels, and Seawright (2013). avenues of inquiry in Moss, Thaker, and Rudnick (2013). 12 Bakija, Cole, and Heim (2012). 6 Haisley, Mostafa, and Loewenstein (2008). 13 Meltzer and Richard (1981). 7 Kuziemko, Buell, Reich, and Norton (2014). 14 Ashok, Kuziemko, and Washington (2015). 8 Shah, Mullainathan, and Shafir (2012). 9 Atkinson, Piketty, and Saez (2011). 10 Saez and Zucman (2014).

3 Social Cognition Perceptions of Inequality

It seems possible that economic inequality influences the attitudes we Because exact measures of others’ income and wealth are rarely available hold toward one another, as well as the ways we think of ourselves in to us, assessments of relative position are often made on the basis of very group contexts. Are individuals in extremely unequal societies less likely imperfect signals. Americans, irrespective of ideology or income level, to trust one another or participate in civic institutions? Do people view vastly underestimate the degree of inequality in the national distributions themselves in an increasingly positive light in order to cope with the of income and wealth.17 If people fail to perceive inequality accurately, competition for status that accompanies high levels of inequality? Are what makes inequality salient and forms the basis of their perceptions? levels of civic participation or social cohesion linked to the degree of We know very little about when, where, and why perceptions tend to mirror inequality in a society? or depart from reality; whether these dynamics differ across political, socioeconomic, geographic, or age groups; and how these patterns might Although numerous studies provide evidence of the effects of inequality on inform our understanding of how (and in what contexts) individual decision social cognition, this line of research has primarily relied on cross-national making may be influenced by inequality. correlations. One research team found, for example, that a society’s level of income inequality is highly correlated with the extent to which its residents New research might draw on the lessons of inquiries that decomposed tend to see themselves as better than the average person.15 Cross-country complex community-level phenomena to better understand how they are studies have also indicated that high inequality at the national level perceived.18 Researchers could aim to identify cues that different people— correlates with lower degrees of trust and greater prevalence of ambivalent and different socioeconomic groups—use for estimating inequality (e.g., stereotypes, which are thought to legitimize prejudice and discrimination the neighborhood frequency of luxury stores or visible home renovations) or through the association of positive traits with stigmatized groups.16 The test the information channels that may affect judgments about inequality next step, it seems, is to examine whether causal relationships between (e.g., media reports on earnings gaps). Improved understanding of how economic inequality and basic social cognitive processes —such as inequality is perceived and assessed in everyday life could open new self-enhancement and interpersonal perception—can be identified at avenues in the study of inequality and decision making. the individual level, potentially in a lab setting.

15 Loughnan et al. (2011). 17 Norton and Ariely (2011); Kiatpongsan and Norton (2014). 16 The stereotype content model argues that ambivalent stereotypes “paint both advantaged and 18 For example, to better understand how social disorder is perceived in communities, scholars identified disadvantaged groups as possessing distinctive but counterbalanced strengths and weaknesses,” and examined the physical and social cues that signal social disorder (e.g., vandalism, litter, and public which encourages the perception that “every class gets its share,” and serves to legitimize consumption of alcohol). See Hunter (1978); Perkins and Taylor (1996); Sampson and Raudenbush (2004). discrimination and rationalize the status quo (Durante et al. 2013). See also, Kawachi et al. (1997).

About the Tobin Project

The Tobin Project, founded in 2005 on the belief that rigorous scholarship on major, real-world problems can make a profound difference over the long term, strives to be a catalyst for transformative research in the social sciences. The mission of the Tobin Project is to mobilize, motivate, and support a community of scholars across the social sciences and allied fields seeking to deepen our understanding of significant challenges facing the nation. Inspired by Professor James Tobin’s belief that scholars have a vital role to play in the public sphere, the Project has built an interdisciplinary network of over 400 leading scholars across 80 universities, from Nobel Laureates to the most promising graduate students, who are together working to generate pioneering research on pressing problems of the 21st century. Currently, the Tobin Project is focused on four core research inquiries: Economic Inequality; Government & Markets; Institutions of Democracy; and National Security. For more information, please visit www.tobinproject.org.

The Tobin Project is a non-partisan organization recognized as a public charity under sections 501(c)(3) and 509(a)(1) of the Internal Revenue Code.

Please direct any questions to [email protected].