How identity influences the economic choices we make
Identity Economics provides an important and compelling new way to understand human behavior, revealing how our identities--and not just economic incentives--influence our decisions. In 1995, economist Rachel Kranton wrote future Nobel Prize-winner George Akerlof a letter insisting that his most recent paper was wrong. Identity, she argued, was the missing element that would help to explain why people--facing the same economic circumstances--would make different choices. This was the beginning of a fourteen-year collaboration--and of Identity Economics.
The authors explain how our conception of who we are and who we want to be may shape our economic lives more than any other factor, affecting how hard we work, and how we learn, spend, and save. Identity economics is a new way to understand people's decisions--at work, at school, and at home. With it, we can better appreciate why incentives like stock options work or don't; why some schools succeed and others don't; why some cities and towns don't invest in their futures--and much, much more.
Identity Economics bridges a critical gap in the social sciences. It brings identity and norms to economics. People's notions of what is proper, and what is forbidden, and for whom, are fundamental to how hard they work, and how they learn, spend, and save. Thus people's identity--their conception of who they are, and of who they choose to be--may be the most important factor affecting their economic lives. And the limits placed by society on people's identity can also be crucial determinants of their economic well-being.
While this research was long overdue in the economics community, and the case studies currently relevant, Nobel Prize laureate George Akerlof has failed to tailor this book for any target audience. Too uninspiring for the 'pop sociology' Gladwell-ites, and likewise too vague and self-referential for students of economics, Identity Economics fails to inspire or even inform.
I can't believe economists are just now discovering that how people view themselves and their place in society affects the economic decisions they make. Identity economics is a very promising field, and this book represents the tip of the iceberg. The chapters on gender and race left much to be desired, but as this book is merely an introduction to the topic of identity, and because entire books can be (and have been) written on how gender and race/ethnicity influence economic behavior, I'm willing to give the authors a pass. As a development specialist, I see a lot of potential applications of the framework that the authors lay out here to such topics as the economics of peace and conflict. Many economists, such as Paul Collier, believe that ethnic conflict results from manipulative elites duping gullible people into fighting their pointless wars. Taking identity seriously, as these authors do, allows us to overcome such crude instrumentalist formulations.
My main criticism of the book is that the authors could not seem to decide who their real audience is. The book is not rigorous enough to satisfy most professional economists, but at the same time there may be too much jargon for the lay reader. Nonetheless, Identity Economics is an important book because it indicates that economists are finally starting to listen to what anthropologists and sociologists have been saying all these years about the importance of socially constructed identities for understanding economic and political behavior.
This was a quick read with some important ideas. The core idea is that we can integrate identity into standard economic models by formalizing identities as sets of social norms and assigning costs and benefits for both following and not following those norms.
Let's expand on that. Following the authors, we define identities as sets of norms that people generally expect others to follow. These can be the usual identity categories like gender or race. They can also encompass identities such as whether or not an employee has an "insider" or "outsider" identity -- that is, do they see their job as just a job or as part of their personal identity. People decide which norms apply to them by observing others. This is necessary even if one does not want to conform to the norms -- because not following norms generally imposes costs which are important to understand.
Norms and identity as a general category are neither good nor bad. In this model, what makes an identity good or bad is the cost of nonconformance. Although the authors do not go into it (that I remember), in this model I would define as stereotype as sets of norms that are applied to people who would prefer not to be held accountable to those norms (especially, but not only, when those norms make inaccurate factual claims in addition to normative claims).
To formalize the notion of the costs and benefits of identity, the author apply a four step process:
1. Associate individuals with social categories. 2. Specify prevailing norms for these categories. 3. Posit individual gains and loses from different decisions given particular identities and norms. 4. Combine these with other forms of economic analysis to determine what people will do.
Note that this is a descriptive process, not a prescriptive process. Thus, these steps are not about attempting to define and enforce norms. They are about describing the categories and norms that exist in the world and influence people's behaviors.
That's the model. The rest of the book applies the model to a number of case studies including organizational identities, student association with education, gender, and race.
The authors also spend time discussing why this is a useful extension to the economic model, especially given that many of the case studies have "well, duh" sort of conclusions. E.g., people who identify with an organization will be more honest with the resources of that organization or people who work in counterstereotypical professions will experience negative costs, including discrimination or harassment from those who want to maintain the existing norms.
But that "well, duh" is kind of the whole point. These conclusions seem obvious because they're such an important part of how the world works. Other economic models -- including other types of non-strictly-monetary utility such as those deriving from taste, imperfect information, or cognitive biases -- don't predict these obvious outcomes. The authors do not claim that identity is the only or even the dominant form of utility if most decisions. As step 4 of the process says, "Combine [identity factors] with other forms of economic analysis to determine what people will do." However, identity based norms have an influence on our lives, and if we want our economic models to be useful tools for society, we need to take them into account.
You do not need this book to understand the academic literature in economics of identity, nor do you need this book if you want to be entertained by the amazing power of identity in human society. So only suitable for those who do research in the area and want a light reading that relevant...
تقريبا در تمام علم اقتصاد معاصر تصميم هاي مردم به عنوان بيشينه سازي توابع مطلوبيت فردي شان توصيف مي شود. 'تابع مطلوبيت' راهي است براي توصيف انگيزه افراد. رفتار افراد به اين بستگي دارد كه مردم فكر مي كنند چه كسي هستند. دسته بنديهاي اجتماعي بطور معنادار رفتار را تغيير مي دهد تمام بررسي هاي اقتصادي با توصيفي از انگيزش مردم آغاز مي شود. تنها با سه جزء، دسته بندي ها، هنجارها و ايده آل ها و در نهايت تابع مطلوبيت، در مي يابيم كه چگونه انگيزش ها با رفتار اجتماعي تغيير مي كنند. فرآيند ما دو بخش دارد. در بخش ١ مؤلفه هاي مرسوم مطلوبيت شامل رجحان هاي شخص براي كالاها، خدمات يا ساير برون دادهاي اقتصادي را مشخص مي كنيم و در بخش ٢ عناصر هويت را براي بافتار اجتماعي مرتبط: ١- دسته بنديهاي اجتماعي و تخصيص دسته يا هويت هر فرد ٢- هنجارها و ايده آل ها براي هر دسته ٣- تابع هويت كه وقتي كنش ها با هنجارها و ايده آل ها تطابق دارد، افزايش و تا زماني كه تطابق ندارد، كاهش مي يابد. چرا هر روز زنهاي بيشتري ميبينيم كه سيگار ميكشن؟ چرا در مهماني لباس رسمي مي پوشيم؟ چرا با افزايش دستمزد و مزايا راندمان كاري به همون نسبت زياد نميشه؟ اينها يكسري سوالاتي هستن كه اين كتاب سعي بر تبيين اونها داره. و جواب تمام اونهارو هم هويت ميدونه! چندتا مسئله در مورد ترجمه كتاب مطرحه: ١- ترجمه متون علمي به زبان فارسي هميشه سخته. هم براي مترجم و هم خواننده كه متن رو ميخونه. اين كتاب هم از اين قاعده مستثني نبود. تعهد مترجم به استفاده از لغات فارسي مثال زدني هست. ٢- زيرنويس و ارجاعات كتاب در پايان هر فصل اومده كه حداقل براي من خيلي سخت بود بخوام هي ورق بزنم بوم صفحه مربوطه و دوباره برگردم. اقتصاد رفتاري موضوع جديدي حساب ميشه و به زبان فارسي كتابهاي زيادي در موردش هنوز وجود نداره. قطعا اين يكي از كتابهاي خوب در اين زمينه هست.
The authors see people not just as individuals alone out for themselves, but also as having social categories that define them as belonging to particular groups. Some groups are general and inherent such as male or female. Others are by choice such as political affiliations. Work situations provide an especially interesting circumstance where individuals sometimes identify with their company's mission as insiders, or see themselves as outsiders whose only concern is with the pay and other benefits that the company provides without any concern for the mission of the company. Insiders are sometimes willing to work hard for the company's mission even when they are not compensated well. Outsiders need lots of compensation to motivate them to do the company's work. Insiders have norms and values that are instilled in them as part of the group or social category they identify with. I must admit that I am a big fan of George Akerlof, both because he has done great work in economics (Nobel prize, etc.) and as a fellow graduate of our beloved Lawrenceville School in Lawrenceville, New Jersey (two miles from Princeton). https://www.lawrenceville.org/admission
How we identify ourselves influences our decisions.
Non-economists may find that statement to be self-evident and not worthy of a whole book, let alone a whole new field within an academic field. Yet the nuance behind this statement is what makes this topic so very important and impactful. Initial insights in the economic field came by stripping humanity down to rational automatons: homo economicus. This model did not reflect the lived human experience, though it did help identify patterns at the macro level. Nuance comes now through the work of economists like Akerlov and Kranton, who integrate the lived experiences of actual humans into the framework of economics. In this accessible and non-pretentious book, the two economists revisit fundamental economic choices--school, work, the family--and bring the psychological insights on identity to bear, to good effect.
The book held my attention at parts, but other parts felt fairly dry. What I thought was the best was his focus on the identity of people as either an insider or an outsider. When people feel that they are on the inside they will behave one way, and when they feel they are on the outside they will behave another. This identity, or division, can be for a large variety of reasons (religion, race, gender, etc.). Some of these divisions seem to be created by others, while some divisions people seem to create for themselves. Many workplaces, for example, will try and create an atmosphere where everyone feels like they are on the inside, in order to produce a more harmonious and productive workforce (the military is an example here).
His main observation is okay, but the rest of the book felt forgettable.
Great book. It expands the view of economists. It introduces social categories, norms, ideals and identity to economics. Very clear style of writting. It motivates to go beyond standard economic models and quantitative analysis. It shows how to go in that direction. Interdisciplinary research in practice. It has a potential to change the economic profession in a way Gary Backer did by introducing tastes to economics and behavioral economists did by focusing on cognitive biases and bounded rationality. It could be the last step before someone comes with a concept of "existencial economics" that I think is waiting to be elaborated, explored and highly demanded.
I recently finished listening to the book, “Identity Economics” by Prof. Kranton and Prof. Akerlof, on Audible. What I learned from the book is that we can add the identity component in the utility function and analyze how identity (i.e., non-monetary benefit/cost) affects people’s decisions in different scenarios. Overall, I think this is a great book on the economics of identity.
I have one comment on the model. What their modeling approach cannot explain is why there is such identity component in the utility function. Therefore, I think it would fruitful for future research to endogenize the identity in the model.
This entire review has been hidden because of spoilers.
This was a good book and pretty interesting. Akerlof and Kranton break down how identity plays a role in economic circumstances for various groups. Whether it’s race, gender, or any other identifiers, these play a role in education leading up to our careers. It’s not only how different groups are treated and expected to act by people of higher status like employers, but it’s also about the way individuals within these groups act based on their identity.
The beginning is a bit slow as they lay out their theory of identity economics, but as they start getting into the data and how it applies to real world scenarios, it gets really interesting. It’s a short read and definitely worth it.
Le livre "Identity Economics" de George Akerlof et Rachel Kranton explore le rôle de l'identité dans les décisions économiques. Les auteurs affirment que l'identité peut influencer les choix de consommation, les décisions de carrière et les relations sociales, et que les politiques publiques doivent prendre en compte cet aspect pour être efficaces. Un livre intéressant pour ceux qui cherchent à comprendre les motivations derrière les choix économiques.
Interesting read, though I am skeptical if it is as pathbreaking as the author suggests it is. The book is largely focused on stapling economic understandings to sociological problems. Still, it is probably worth a quick read if the topic interests you. It brings an economic thinking to problems few apply the model to.
Alkerlof presents interesting insights and helps us view the intersection of psychology and economics with 'identity' as the lens. Though, just when one is beginning to think of the deeper implications of his proposition as well its application, the book almost nears an end. A quick read, engaging enough to motivate the reader to read further about the work happening in this domain.
Excelente el tema, pero el libro no me resultó tan interesante. A pesar de mostrar un framework para incluir las identidades y las normas en las funciones de utilidad, después se vuelve algo monótono. Interesante en concepto de cómo incluir las preferencias de diferentes grupos sociales, y cómo en el largo plazo estas pueden cambiar
What is the effect of identity on behavior from an economic perspective? This is the key question which George Akerlof and Rachel Kranton wish to explore in their book "Identity Economics". Akerlof and Kranton argue that many phenomena both within and without the realm of economics - e.g. R-Day at West Point - can be explained neither by standard (neoclassical) economics nor even by behavioral economics, but can be explained by "identity economics". Identity economics, as conceptualized by the authors, refers to the idea that people belong to various social categories and follow the norms appropriate for these categories if they identify as a member of these. Those norms, in turn, affect behavior.
After a short introduction, Akerlof and Kranton develop the idea of identity economics based on the central concepts of identity and norms before locating the subject of identity economics within contemporary economics. What follows thereafter are a series of applications of identity economics to various topics, including work performance, the quality of education, gender-based occupational segregation, and racial discrimination. Looking ahead, the authors explain the relationship between identity economics and economic methodology and, concluding, list and describe five ways how identity economics affects economics.
The book is based on Akerlof and Kranton's own research on the topic; in that context, the corresponding article on identity economics in the Journal of Economic Perspectives offers a slightly more technical but very useful and still readable introduction to identity economics as well. Overall, the book is well-written, although one could criticize that the authors have given more space to entertaining and demonstrative anecdotes than to comprehensive, reflected statistical or econometric arguments to make their case. Nonetheless, the subject is an interesting one and one where I would expect substantial further research to follow on.
The author's central thesis is so intuitive and remarkable that it is shocking that economics didn't catch onto this earlier. I have always been hyper-suspect of homo-economicus as too reductionist of human nature. This theory accounts for a large psychological-social aspect of decision making based on the Utility of Identity. As social creatures humans are predisposed to be 'groupish' and these groups create a shared identity based on shared norms and expectations. An individual thus derives utility from making decisions that fit with those group norms. This is why when not account for identity economics an individual may appear to be acting against his/her best interest. For example donating significant amounts of money to charity. From a purely rational perspective there shouldn't be any utility in this decision, but when you account for how that individual identifies him/herself it you find out that they belong to an organization that preaches the value of supporting others. This is part of their identity and so the unseen benefit is the sense of well-being that individual derives from that act.
This also explains why things like Racism, Sexism and other forms of discrimination are so prevalent, because identity economics reinforces us vs them behavior in individuals. Meaning that if you are part of the 'out' group trying to integrate with an 'in' group you will incur loss of personal utility from going against how you identify yourself.
Grabbed this book from the new book shelf at work as I needed something to listen to on my commute. It was interesting, but I am glad I have a degree in economics, as some of the terminology was definitely subject specific. It talked about a relatively new aspect of economics that uses individual or group identity perception to predict behaviour. Some types of identity are generally fixed (race, gender), while others are temporary and may change over time. Standard economics says that people would choose economic behaviours that would be of most benefit to them, but that doesn't always happen. Identity economics shows that how a person identifies themselves influences their behaviour (one example: they want to do what the rest of their peer group is doing so they fit in). The authors use examples from work, school, and home to show different ways this happens. They also show examples of both fixed identity and temporary identity and how behaviours can change over time. It was quite interesting and can explain a lot of things that don't seem to make sense otherwise (like election results ;->) It made me think about things in a different way.
The topic of this book is very interesting; however, it is basically an elaboration of Akerlof's AEA presidential address "The Missing Motivation in Macroeconomics." I became interested in reading the book after reading that address, but the book is more or less a less-technical exposition of the same ideas. The overall thrust is that economists need to incorporate social norms into their models of utility functions, and that doing so can help explain several counterintuitive results that arise when modeling with "homo economicus" utility functions. To non-economists this probably seems like an obvious point, but to us it seems insightful! It connects in my mind with the arguments in "Difficult Conversations", which postulates that the most difficult-to-resolve conflicts are those that somehow bear on the self-perceived identity of one of the parties. I have seen very strong evidence that this is the case in my own life, and it's interesting (though challenging) to bring it to the concepts of economic modeling.
I started with the misperception this was a book on economics, but it fits better in the business category.
A late section illustrates my view of the book:
.. most economists also believe that a good model yields surprising conculsions.. there must be a gentlemanly distance between assumptions and conclusions, otherwise the theory is vacuous... We are like the sage who explained movement by saying that it is due to the principles of locomotion.
The section goes on to point out two examples of conclusions from identity economics that don't follow from the standard model (homo economecus). But IMO that goes to show the childish vacuity of the standard model. It falls far short of offering any surprising insights.
The identity economics model does invite examination of interesting points: as a natural expansion of kin-selection I'd like to know where it came from and how it is sustained. But G Akerlof has a different outlook and never goes near these topics.
His book has lukewarm reviews but I'm gonna give it a 4 because i think identity economics has great potential. The reader must understand that it is still a field in the fetal stages of development so studies and data are limited.
I was first exposed to identity economics when I read gang leader for a day. The book showed that even though drug dealers made minimum wage (equivalent to a mcdonalds salary), they chose the more risky profession because they wanted to be identified a certain way. This book posits a framework to study identity economics and applies them to a couple examples. The most interesting of these was workplace dynamics. How do institutions derive incentive pay, how do they optimize productivity, and why are they more likely to hire a certain race/gender/Identity. I look forward to development in this field.
Akerlof y Kranton deciden incorporar un factor que la economía tradicional ha ignorado. La identidad y con esta idea introducir al estudio económico el impacto de las normas sociales y como estas influencian la conducta humana.
Los autores siguen como guía el trabajo de Gary Becker manipulando funciones de utilidad para incorporar preferencias fuera de lo común en el trabajo de los economistas y aumenta el poder explicativo de la economía partiendo de la teoría clásica de la economía, incorporando cuestiones psicológicas, de la economía del comportamiento y finalmente creando este nuevo campo al que llama "economía de la identidad"
Es un libro pequeño pero sumamente entretenido que permite entender fenómenos interesantes con un método muy sencillo pero poderoso. Vale mucho la pena su lectura, incluso si no se cuenta con formación en economía.