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. Identity is also useful because it gives us a way to think about how behavior should vary across types.

Economists have recently adapted from psychology the idea that utility depends upon how a situation is framed. Identity describes one special way in which people frame their situation.

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