Identity Economics

What is identity economics?

Identity economics incorporates a person’s sense of social identity into economic analysis. Categories, expectations about how people in those categories should behave, and conformity to or departure from those expectations can enter the model of what a person values.

Research foundation

Akerlof and Kranton’s 2000 paper explicitly adds identity to a utility function and develops applications to workplace discrimination, social exclusion, and household labor. It changes the specification of preferences rather than simply discarding utility maximization.

Examples of identity economics

Consider someone choosing a more expensive product because it fits the kind of person they believe themselves to be. Or a worker who values meeting professional standards even when cutting corners would go unnoticed. Identity economics gives these values a place in the analysis alongside money, time and other consequences. A symbolic purchase need not fall outside economic reasoning: the identity-related value can be part of what the person is trying to maximize.

Criticisms and measurement challenges

The hard part is showing that identity explains the choice. Price, habit, convenience and social pressure can produce similar behavior. An empirical application needs to specify the relevant identity and show how its proposed effects can be distinguished from other explanations.