The knowledge that we don't have here is whether researchers asked their subjects "what percentile did you lie in" or "how many people do you feel like you performed better than"? (We can probably assume that they didn't use only the term "average" since the report showed that the subjects rated themselves at specific percentiles.) And somehow I doubt that researchers looking into the study of incompetence would assume that people would know what percentiles are.

I found the paper. First, all of the participants were Cornell undergraduates, so we can assume that they have some reasonable level of education. It shouldn't be as if they're trying to explain the concept to someone raised by wolves. The most detailed explanation of their description to the participants on how to rank themselves is:

Quote:
Afterward, participants compared their "ability to recognize what's funny" with that of the average Cornell student by providing a percentile ranking. In this and in all subsequent studies, we explained that percentile rankings could range from 0 (I'm at the very bottom) to 50 (I'm exactly average) to 99 (I'm at the very top).

Unfortunately, it's still unclear the level to which they detailed the concept of percentiles. But they did specifically ask the participants to compare themselves with others, not on some absolute scale. If they answered on an absolute scale, that would sound to me like either the inability to follow directions, the inability to comprehend directions compounded with the inability to recognize the inability to comprehend, or the inability to comprehend directions compounded with a lack of asking for clarification, all of which sound like incompetent behaviors to me.