One of the odd things about working in finance is that, after a while, you begin to see the hidden quirks of humanity that might be “obscured” to the majority.
Case in point: wealth distribution. Not surprisingly, most people mistakenly believe that even the little guy (e.g. the bottom 20% of earners) gets a small (e.g. at least 1%) seat at the big money table. Not true.
Because of their small percentage share of total wealth, both the “4th 20%” value (0.2%) and the “Bottom 20%” value (0.1%) are not visible in the “Actual” distribution.
After logging enough hours in front of a trading screen, you eventually become self-aware of just how much wealth can be exchanged in a single minute in a semi-popular stock, not to mention, the immensity of the cumulative wealth exchanged in global marketplaces like NYSE and NASDAQ over an entire trading day.
So I’m actually a little disappointed in the >$100k voters in this behavioral economics / investor psychology experiment because they didn’t do a better job at estimating reality versus what the real wealth distribution really is.
But, therein lies the beauty of behavioral economics by illustrating how well our cognitive biases, preconceived notions and cultural ideologies prevent us from seeing reality versus fictitious talking points so common in mainstream media today.
Image Source & Credit
Michael Norton, Consumer Psychologist at Harvard University
Dan Ariely, Behavioral Economist at Duke University
Building a Better America – One Wealth Quintile at a Time (opens to PDF)
Forthcoming in Perspectives on Psychological Science