Bring Your Questions for the "Identity Economists"

Identity Economics

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.


Peet

I would like to entertain the question of social costs of certain economic actions, i.e. I need a new garage, I can
A. Have my out of work brother do it
B. have someone knowledgeable on building do it
C. I can have a trained professional do it.
Each subculture and even microculture has different answers to that question, and while it is a personal question for me the same question goes to those who choose government contracts etc. They are making those personal decisions based ultimately on the social costs, and therefore establishing their identities in the process.
Having established those identities, entire rafts of future choices are removed and added and tends to make behavior more predictible.

Michael K

If we as citizens make a conscience effort to be more rational or economically self-interested, take strategic defaults for example, would we all benefit as a society as a result?

DG

Isn't all this identify stuff endogenous to other potential outcomes?

Tim

As a medical student the only time you here people discussing the economy is in sarcastic jabs about how health care reform has become a bipartisan issue, but that's an issue for another day. What I am interested in is whether you have looked at all into how people manage their health. From the perspective of someone who is learning how people get sick, it is staggering how much disease could be prevented with a change in our cultural identity. It is not a coincidence that a country who just imploded on its self because of reckless financial behavior is also the country where kids are developing hypertension and type 2 diabetes before they learn algebra.

Leslie K.

Sometimes more explanations are possible for certain behaviors. For instance, @14, the case of "F'rinstance, my mom won't shop at WalMart", mom can feel that "us kind of people" does not shop at Walmart, something that is tied to identity, or she can be genuinely convinced that Walmart does not give her what she is looking for (in quality, shopping experience, or otherwise), which would not be tied to her identity. In what kind of circumstances can identity economics explain things that other economic or psychological models cannot sufficiently explain, and how can you find what the best explanation is between all the possible models in a certain situation? What experimental indication is there that in certain situations identity is so important, and what would be a good experiment to prove that sense of identity can be so important?

blake

what superficial concepts in indentity economics can i use to justify my already held biases?

Bobby G

Dubner, gotta keep you honest.

"readers who have become disgusted by the notion that all economists feel that free markets solve all problems"

As a free-market proponent myself, I would never say that they will solve 'all' problems. Certainly there are cases of market failure where organized government intervention may (not will) help the situation. Do I wish there was never any government market intervention? Absolutely not. Do I think the government is too involved today? Absolutely.

Regarding discrimination, free-market advocates combat that with the sentiment that a free market naturally discourages discrimination. If a top candidate for a job, the best "value" per dollar spent on a given salary, let's say, is a woman, then the employer that discriminates will have to take a second rate candidate to accomodate his/her discrimation appeals. A competitor who does not discriminate will then have an advantage by hiring the better employee skipped over by the discriminator.

If discrimination is so wide-reaching that the top female candidate mentioned cannot find employment anywhere, it is testimony to the fact that those in control of labor are so well-established and entrenched that a non-discriminatory competitor cannot even enter the market to take advantage of the misplay. Government intervention has likely had a hand in this fact itself... those in control seek to stay in control. Just because it takes government action to fix mistakes made by previous government action doesn't mean government action is a good thing... of course this is the argument used by people in favor of increasing government regulation following the mortgage crisis.

If you hadn't used the word "disgusted" I wouldn't have posted :)

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jjn

What are the limits of self-esteem in overcoming natural boundaries due to genetics or inherent physical handicaps? Sure you can document places that raising self-esteem or shaping identity matters, but HOW MUCH does it matter? Especially when controlling for genes and physical handicaps in the long run (and not just short term test effects)? For economists, the authors were surprisingly quiet on this important issue.

Ros

What does identity economics have to say about performance pay systems?

Erik B

I am having a hard time getting past the idea that, when actually modeled, all the Akerlof and Kranton have done is just further specify the utility function. Now I GUESS they could argue that there most interesting findings are how short term "identity utility" cuts against longer term "boiler plate" utility but I am not sure we couldn't just parsimoniously get at that with a discount rate on future rewards. It was a frustrating read - while reading it I found a lot of "wow" moments but then, upon further reflection, I really wondered if we weren't simply adding additional complexity to the model that we could cut away by just better specifying the up front utility calculus.

I also REALLY wished they had taken on, more directly, how their ideas about norms and utility in cooperative/competitive games varies from how modern game theory is thinking about that. A chapter (or anotated discussion on that) would really help illustrate what we are gaining by bringing in norms and identify into the model.

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1ArmedEconomist

It seems that in your book someone's "identity" is the same as a set of preferences plus perhaps a way of forming new preferences. Do you agree with this, and if so what do you think is useful about using the term "identity" to describe a preference ordering / utility function?

Rob Lewis

Just discovered this so I'm late to the party. I hope my question might be forwarded to the authors.

In her landmark book "The Nurture Assumption," child development expert Judith Rich Harris discusses at length the "salience" of various identities. For example, in a group of children too small to break into subgroups, the salient identity is "child" (vs. "adult"). In larger groups of mixed sex, the salient identity automatically becomes "boy" vs. "girl."

This appears to prefigure what your book seems to be about (I haven't read it). Do you think that the appearance of these characteristics in childhood indicates innate human tendencies? (The major point of Harris' book is that "nurture" has been given far too much emphasis in accounting for child development; her review of the research-much of it poorly done to the point of being worthless-demonstrates that very little of our adult personality is shaped by our home environment growing up, and a lot of it, specifically about 50%, is in our DNA.)

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