Inequality and Relative Ability Beliefs ∗

Abstract: In this study I present novel experimental evidence for an under-explored mechanism yielding inequality persistence. Building on Just World Beliefs research (Lerner, 1965), I hypothesize that individuals tend to believe they merit the unequal treatment they experience. Because a component of merit is ability, being disadvantaged (advantaged) by inequality may undermine (bolster) individuals ’ confidence in their own relative ability. Since many decisions determining economic success rely on such beliefs, inequality may be self-perpetuating. I conduct multiple experiments which randomly assign participants high or low pay to complete an identical task in which performance depends on cognitive ability. I find that low pay consistently causes a 20 percentage point increase in the propensity to believe one performed below the median despite the fact that actual performance never varies by pay. Finally, I show that among males high pay increases competitiveness by 33%