PhD Candidate, Department of Economics, LSE
Contact information
Email: l.v.windsteiger@lse.ac.uk
Phone number: +43 650 573 0940
Room number: 32L.4.08D
Address: Department of Economics || London School of Economics and Political Science || Houghton Street || London WC2A 2AE
Research interests
Primary Fields: Microeconomics || Political Economy
Secondary Fields: Behavioural Economics || Public Economics
Job Market Paper
Sorting in the presence of misperceptions with an application to income inequality
Abstract
In this paper I analyze how social segregation and beliefs interact. Sorting decisions will be affected by beliefs about society, but these beliefs about society are in turn influenced by social interactions. In my model, people sort into social groups according to income, but become biased about the income distribution once they interact only with their own social circle. I examine, which types of misperceptions guarantee the existence of “biased sorting equilibria”, i.e. stable partitions in which people want to stay in their chosen group, despite their acquired misperceptions about the other groups. I introduce a criterion - the consistency requirement - and characterize environments for which it selects a unique biased sorting equilibrium out of all possible stable partitions. The second part of the paper displays one possible application of this new framework to inequality and the demand for redistribution. I show that under segregation an increase in inequality can lead to a decline in perceived inequality and therefore to a fall in people’s support for redistribution. I motivate my main assumptions with empirical evidence from a small survey that I conducted via Amazon Mechanical Turk.