Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being

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. … [ Read more ]

George Akerlof, Rachel Kranton

People respond almost too well to monetary incentives. That is, ‘firms get what they pay for’, but since these schemes cannot be targeted well, what firms get is often not what they want.

If an organization is going to function well, it should not rely solely on monetary compensation schemes. The ability of organizations to place workers into jobs with which they identify and the … [ Read more ]

George Akerlof, Rachel Kranton

In a model of utility, a person’s identity describes gains and losses in utility from behaviour that conforms or departs from the norms for particular social categories in particular situations.This concept of utility is a break with traditional economics, where utility functions are not situation-dependent, but fixed.

Identity is useful to economists because it suggests a natural way in which behaviour can vary within a population. … [ Read more ]