A Moral Dunning-Kruger Effect?
In a famous series of experiments Justin Kruger and David Dunning found that people who scored in the lowest quartile of skill in grammar, logic, and (yes, they tried to measure this) humor tended to substantially overestimate their abilities, rating themselves as a bit above average in these skills. In contrast, people in the top half of ability had more accurate estimations (even tending to underestimate a bit). The average participant in each quartile rated themselves as above average, and the correlation between self-rated skill and measured skill was small.
For example, here's Kruger and Dunning's chart for logic ability and logic scores:
(Kruger & Dunning 1999, p. 1129).
Kruger and Dunning's explanation is that poor skill at (say) logical reasoning not only impairs one's performance at logical reasoning tasks but also impairs one's ability to evaluate one's own performance at logical reasoning tasks. You need to know that affirming the consequent is a logical error in order to realize that you've just committed a logical error in affirming the consequent. Otherwise, you're likely to think, "P implies Q, and Q is true, so P must be true. Right! Hey, I'm doing great!"
Although popular presentations of the Kruger-Dunning effect tend to generalize it to all skill domains, it seems unlikely that it does generalize universally. In domains where evaluating one's success doesn't depend on the skill in question, and instead depends on simpler forms of observation and feedback, one might expect more realistic self-evaluations by novices. (I haven't noticed a clear, systematic discussion of cases where Dunning-Kruger doesn't apply, though Kahneman & Klein 2009 is related; tips welcome.) For example: footraces. I'd wager that people who are slow runners don't tend to think that they are above average in running speed. They might not have perfect expectations; they might show some self-serving optimistic bias (Taylor & Brown 1988), but we probably won't see the almost flat line characteristic of Kruger-Dunning. You don't have to be a fast runner to evaluate your running speed. You just need to notice that others tend to run faster than you. It's not like logic where skill at the task and skill at self-evaluation are closely related.
So... what about ethics? Ought we to expect a moral Dunning-Kruger Effect?
My guess is: yes. Evaluating one's own ethical or unethical behavior is a skill that itself depends on one's ethical abilities. The least ethical people are typically also the least capable of recognizing what counts as an ethical violation and how serious the violation is -- especially, perhaps, when thinking about their own behavior. I don't want to over-commit on this point. Certainly there are exceptions. But as a general trend, this strikes me as plausible.
Consider sexism. The most sexist people tend to be the people least capable of understanding what constitutes sexist behavior and what makes sexist behavior unethical. They will tend either to regard themselves as not sexist or to regard themselves only as "sexist" in a non-pejorative sense. ("Yeah, so what, I'm a 'sexist'. I think men and women are different. If you don't, you're a fool.") Similarly, the most habitual liars might not see anything bad in lying or just assume that everyone else who isn't just a clueless sucker also lies when convenient.
It probably doesn't make sense to think that overall morality can be accurately captured in a single unidimensional scale -- just like it probably doesn't make sense to think that there's one correct unidimensional scale for skill at baseball or for skill as a philosopher or for being a good parent. And yet, clearly some baseball players, philosophers, and parents are better than others. There are great, good, mediocre, and crummy versions of each. I think it's okay as a first approximation to think that there are more and less ethical people overall. And if so, we can at least imagine a rough scale.
With that important caveat, then, consider the following possible relationships between one's overall moral character and one's opinion about one's overall moral character:
Dunning-Kruger (more self-enhancement for lower moral character):
[Note: Sorry for the cruddy-looking images. They look fine in Excel. I should figure this out.]
Uniform self-enhancement (everyone tends to think they're a bit better than they are):
U-shaped curve (even more self-enhancement for the below average):
Inverse U (realistically low self-image for the worst, self-enhancement in the middle, and self-underestimation for the best):
I don't think we really know which of these models is closest to the truth.