Economics and Identity*

Abstract

This paper considers how identity, a person's sense of self, affects economic outcomes. We incorporate the psychology and sociology of identity into an economic model of behavior. In the utility function we propose, identity is associated with different social categories and how people in these categories should behave. We then construct a simple game-theoretic model showing how identity can affect individual interactions. The paper adapts these models to gender discrimination in the workplace, the economics of poverty and social exclusion, and the household division of labor. In each case, the inclusion of identity substantively changes conclusions of previous economic analysis.

Prejudice, clinical uncertainty and stereotyping as sources of health disparities

“…A new strand in economics seeks to explain the appearance of these "transaction costs" between members of different groups by introducing the concept of choice of identity. In Akerlof and Kranton (2000), individuals suffer a loss of utility if their actions confront the prescriptions that define their identity or if others' actions confront these prescriptions (ingroups give the person a higher utility than outgroups). Persons choose both their identities and their actions to maximize the expected payoffs, given the probability of encounters with outgroup and ingroup members.…”

Thinness and obesity: A model of food consumption, health concerns, and social pressure

“…Our approach is in line with Akerlof and Kranton (2000), who consider the fact that individuals belong to social categories, and that each category can be associated with di¤erent ideal physical attributes and prescribed behaviors. The existence of these references generates a pressure to conform to the ideal attribute or behavior, and deviations from them are socially sanctioned 3 .…”

“…The existence of these references generates a pressure to conform to the ideal attribute or behavior, and deviations from them are socially sanctioned 3 . Akerlof and Kranton observe that public policies sometimes are directed at manipulating these references, and consequently individual behavior.…”

Non-Pecuniary Value of Employment and Natural Resource Extinction

“…The economist's standard method of judging the disutility from being laid off focuses on pecuniary losses. According to our calculations, that is 2 For a general and insightful treatment of the effects of identity on economic behavior and outcomes, see Akerlof (2000). Also, see Kranton (2003)(2005) for an analysis of the effects of workers' identity on incentives to exert effort, wage rate variation, and firms' optimal management strategies.…”