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Economic inequality might influence subjective well-being through psychological processes such as status competition and social distance. However, evidence for this claim is mixed. In this Perspective, we suggest that inconsistent findings arise because the psychological effects of economic inequality are driven by perceived — rather than objective — inequality. Perceived inequality is not always related to objective inequality for at least three reasons. First, unequal societies tend to be more physically and psychologically segregated, so, paradoxically, people have less contact with inequality in these societies. Second, people are more influenced by signs of economic disparities in their daily life and close circles than by information about inequality at an abstract level. Third, system-justifying ideologies lead people to perceive more or less inequality relative to objective inequality. We conclude that perceived …