Behavioral economics generally concerns itself with filling in the gaps or explaining the anomalies in traditional economic models. Much of this concerns what economists call “irrational” behavior. In a new book called Identity Economics, George A. Akerlof and Rachel E. Kranton discuss a compelling way of understanding irrational behavior: “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 identity–their conception of who they are, and of who they choose to be–may be the most important factor affecting their economic lives.”
While there are strong echoes in the book of earlier economics research (Gary Becker‘s research on information-based discrimination versus taste-based discrimination, e.g.), there is much here that is excitingly original. Moreover, readers who have become disgusted by the notion that all economists feel that free markets solve all problems will find comfort in Akerlof and Kranton’s analysis. They explain, for instance, why “it took a social movement and government intervention rather than a competitive marketplace to erode the discrimination against women in the United States,” and how identity is related to the economics of education, race and poverty.
Akerlof is a Nobel Laureate and the Koshland Professor of Economics at the University of California, Berkeley; Kranton is a professor of economics at Duke. They have agreed to take your questions on the subject of identity economics, so post them in the comments section below. As?always, we’ll publish their answers in short time.
Addendum: Akerlof and Kranton’s answers are here.