Inequality and Decision Making: Imagining a New Line of Inquiry

The substantial increase in inequality in the United States over the past three decades has provoked considerable debate, with some analysts characterizing rising inequality as among the greatest threats facing the nation and others dismissing it as little more than a hiccup – or even celebrating it as a favorable development – in the progress of American capitalism. Despite numerous claims in popular venues that high inequality has slowed growth, precipitated financial instability, and profoundly distorted the nation’s political system, our review of the literature finds no academic consensus on the consequences of inequality for the health of the economy or the democracy, or for nearly any other macro-level outcome. With the academic community reaching inconclusive and conflicting findings, we suggest that careful empirical study of possible mechanisms by which income inequality may exert macro-level effects is warranted. We suggest further that that one potential mechanism that may be especially worthy of investigation relates to possible effects of high or rising inequality on individual decision making. Drawing on nascent research, we examine a handful of pathways through which inequality may plausibly influence individual decisions. Finally, we propose ways that these and other pathways might be productively explored and assessed through behavioral experiments. By bringing together what are today two separate areas of research – decision making and inequality (or social disparity) – this new line of inquiry could help to break the stalemate that has, until now, characterized the study of inequality and its consequences. * David Moss is the John G. McLean Professor at Harvard Business School; Anant Thaker is a Consultant at The Boston Consulting Group (BCG); and Howard Rudnick is a Program Manager at the Tobin Project. The views expressed in this paper are solely those of the authors and do not reflect the views of the institutions with which they are affiliated. We are grateful to John Cisternino, Yousef Gharbieh, and Sarah Potvin for their research input and their many insights as we developed this paper, and to Lane Kenworthy and Bruce Western for their valuable comments on an earlier version. We also wish to recognize the Tobin Project, where Howard Rudnick is a staff member and David Moss is the president, for its support of this work through the allocation of precious staff time.