How identity influences the economic choices we make
Identity Economics provides an important and compelling new way to understand human behavior, revealing how our identitiesтАФand not just economic incentivesтАФinfluence 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 peopleтАФfacing the same economic circumstancesтАФwould make different choices. This was the beginning of a fourteen-year collaborationтАФand 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 decisionsтАФat 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 futuresтАФand 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 identityтАФtheir conception of who they are, and of who they choose to beтАФmay 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.