09 March 2010

People round their incomes to the nearest $5,000?

Here's something interesting: lots of people, when asked by the US Census Bureau "how much money do you make?", round to the nearest five thousand dollars.

See the data tables from the 2006 census. These give the number of people whose personal income is in each interval of the form [2500N, 2500N+2499], for integer N.

One sees, for instance, that the number of people making between $27,500 and $29,999 (which is near the mode of the distribution) is less than both those making $25,000 to $27,499 and those making $30,000 to $32,499. Something similar occurs at all income levels -- the number of people making between 2500N and 2500(N+1)-1 dollars is smaller if N is odd (and thus this interval doesn't contain a multiple of 5000) than if N is even (and so it does).

Surprisingly, the effect occurs even at very low levels of earnings. If you make $87,714 in a year I can see rounding to $90,000 -- but is the person who makes $7,714 in a year really rounding to $10,000?

(I found this while trying to answer a question at Metafilter: How many people in the United States make more than $10,000,000 per year?. I seem to recall reading somewhere that personal income roughly follows a power law in the tails, but can't actually find a reference for this.)

There also seems to be a preference for multiples of $10,000 over multiples of $5,000 that are not multiples of $10,000. But I have work to do, so I'm not going to do the statistics.


Noah said...

It also may actually be the case that more people have salaries that are multiples of 5K. The reason being that many starting salaries are multiples of 5K.

CarlBrannen said...

Maybe it's really a test of whether or not people can do the math involved in "remember your income to the nearest $2500." A lot of us don't really know what we make, myself included at the moment.

Unknown said...

This effect is actually noticable in cences data for ages (large bumps every 5 years) in places where it's not as customary to keep track of your age that closely.