"George A. Akerlof, Co-Winner of the 2001 Nobel Prize in Economics" "One of Bloomberg News's (bloomberg.com/news) Top Thirty Business Books of the Year for 2010" "Honorable Mention for the 2010 PROSE Award in Economics, Association of American Publishers" George A. Akerlof, winner of the 2001 Nobel Prize in Economics, is the Koshland Professor of Economics at the University of California, Berkeley. He is the coauthor, with Robert Shiller, of Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism (Princeton). Rachel E. Kranton is professor of economics at Duke University.
How identity influences the economic choices we make
Identity Economics provides an important and compelling new way to understand human behavior, revealing how our identities-and not just economic incentives-influence 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 people-facing the same economic circumstances-would make different choices. This was the beginning of a fourteen-year collaboration-and 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 decisions-at 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 futures-and 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 identity-their conception of who they are, and of who they choose to be-may 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. "[Akerlof and Kranton] explore the links between our identities and the everyday decisions we make about earning and spending money. Their goal is to add a more personal touch to economics." "There is no question monetary incentives are important-indeed critical-but it is important also to consider other meaningful ways to motivate and engage work forces. In a recent book by George Akerlof and Rachel Kranton, Identity Economics, the authors document how people in exceptional organizations work well because they identify with the values and the culture, not simply the financial rewards."---Al Gore and David Blood, Wall Street Journal "An important new book. . . . Preserving our identity, obeying its rules, living by its norms is, Akerlof and Kranton argue, one of our central economic objectives. And our behaviour doesn't make much sense unless the importance of identity is understood."---Daniel Finkelstein, The Times "Identity Economics is a popular account of work that will already be familiar to economists who have read the authors' journal articles. It is admirably short, written in a clear, nontechnical style but without the condescending breeziness of many books aimed at the airport market. Nonspecialist readers will find a lot of insightful and well-informed analysis of how issues of identity have an impact on real economic problems."---Robert Sugden, Science "The authors make a compelling case that the group with which individuals identify shapes their decisions about schooling, work, savings, investment, and retirement. This paradigm offers better ways of understanding the consequences of public policies and business practices. . . . Identity Economics provides a new language and
