Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being Hardcover – February 10, 2010

Identity Matters since its affects all aspects of our lives.

Standard economic models based on perfect information and competition neglect powerful identity forces which explain why often actors don't maximize output.

Why do poor and minority children don't tend to obtain higher high school scores?

Why do women earn less money than men in same type of jobs and occupations?

Read the book. Learn and apply its lessons to make the world a better and more just place for all.

Really well-written and easy to understand. On top of that, the topics in this book are incredibly interesting and are things that are very important to understand how people behave today, and even how they will behave in the future.

I must admit, even though I'm definitely an admirer of Akerlof's work, I was fairly skeptical of this book going into it. I figured it was worth the quick read. Well, my skepticism turned out to be misplaced. The book is well-written, clear, and makes its case quite convincingly. After reading it, it was difficult not to concede that mainstream economics needs to put at least some more thought into assessing the role of identity in people's decisions. The book does a nice job of explaining how identity is different from other more common economic theories of people's behavior (asymmetric information, repeated games of cooperation, Becker-style tastes in the utility function), and how it is capable of capturing many important and difficult-to-explain situations that are observed in the real world. Hopefully, the profession will take the book and its suggestions seriously and push research in that direction.

The authors identify this field as nascent and so the book contains only hints of how far this approach can be taken. I don't think it is over stating the case to say America and much of the world is in an identity economics recession. The kind of validation the book describes as on par with monetary compensation has become harder and harder to come by. Once one accepts that there are other purposes to our economy besides maximizing individual life style then most of traditional economics falls apart. The book barely scratches the surface on the possibility that identity utility function, not purchasing power, is the main driver of our economy.

Brilliant. Akerlof and Kranton convincingly challenge the economic assumption "De Gustibus Non Disputandem" (per Gary Becker) --- that tastes are a given, outside the province of economics. An easy and insightful read.

This book is correct in what it is proposing, but it comes across as an article that was lengthened and published as a book to try and make more money out of the concept.

Disclosure: I am earning my Masters in Health Administration as well as my Masters in Business Administration. I read books on behavioral economics, business, strategy, and crowds.

Content: The authors did not find good examples for their argument. Their arguments are loosely built and poorly reinforced. I have read other books (likeSwitch: How to Change Things When Change Is Hard) that bring up some of the main concepts of this book but with better arguments and in a more enjoyable and convincing manner.

Writing style: This book was written like an article -- very, very dry. The authors sound pompous and fail to engage the reader. I could not wait to finish this book.

Overall recommendation: I really wish I could have given this book less than 3 stars, but I had to give some credit where credit is due. Identity economics is real, and the authors should get credit for recognizing and promoting it, but I suggest reading a different book if you want to know more about it.

Very readable and approachable book. It so nice that Economics is beginning to see the effects of culture in their work. Great read.

Economics has been going through an exciting transition. It was once known as the emperor of the social sciences back when the hyper-rational school of neoclassical economics was ascendant. Then psychologists and other more empirically-minded social scientists began to look at how real people make their choices and they found that, surprise, surprise, the emperor of the social sciences had no clothes.

But economists seem to have taken this criticism seriously and economists are developing new, more general tools based on game theory. They are also shameless ripping off the ideas of other disciplines. Economists are better with mathematical tools, game theory, and the (still sound) core of rational choice theory. These tools are letting them colonize other social sciences once again, and this time they will not be so easy to fight off.

That is what happens in this book. Neoclassical economics does not have much to say about how people form their preferences, nor did it have a vocabulary to discuss how people are socialized. That is changing with identity economics. The gist of identity economics is explained in a story that Akerlof and Kranton tell about children on a carousel. The toddler ride on their parents laps. The four and five year old children ride alone and wave to their parents on the sidelines. These children had a sense of identity which told them they were older and did not need to ride with their parents. They took great pleasure in riding alone, unlike the babies. The next older batch of kids were more daring. They'd switch positions, ride one-handed and no-handed, and find other ways to make the ride more exciting.

The thirteen year olds were the most interesting. They genuinely enjoyed the carousel but a part of them - their identity - told them they were too old. Carousels are for little kids. So they rode but pretended to be bored and indifferent. Eventually the cognitive dissonance got to be too much and they'd simply move on to something else. They show the key point: we have preferences for what we subjectively like, but we also have preferences based on our chosen identity. Sometimes they are in conflict. Think of the intellectual who reads "chick lit" or the Christian who listens to secular music.

One of the most interesting applications is for work effort. A firm is a little bit like a commune in that it only succeeds if everyone works hard for the common good. That means that firms suffer from the free rider problem because each worker has an incentive to shirk. There are a lot of market solutions but they tend to backfire. You can use monitors, but monitors only have an incentive to do a good job if they are the residual claim holder who gets the profits. Otherwise doing a good job as a manager won't benefit you, so you run into the "who will monitor the monitors" problem. You can try to pay people based on output, but that can't be easily quantified, so people will game the system to increase their performance in the things that are measured but slack off in the things that are unmeasured. Moreover, workers worry that if they do well, the bonus will be reduced. So workers punish fellow employees who work too hard with social scorn and ostracism and even sabotage. Instead what you get is a situation where people create workplace identities, which in turn sets the norms for work effort. Firms would be well-advised to put their energy into fostering high moral and cohesive workgroup identities than into trying to create incentive schemes or strict monitoring.

The authors then go on to push their model even further, into the realm of race and gender. Overall the walk a delicate balancing act. On one hand, they point out that blacks have identities that lead to creating an "oppositional culture" against whites, and punish good students for "acting white". On the other hand, they do not want to let whites "off the hook" so they take pains to frame this in a way that is consistent with the view that racism and other structural problems lead to this identity. For example, they approvingly cite William Julius Wilson theory about the loss of manufacturing jobs hurting the black community and leading to unmarriageable men, but this has not held up (see Poverty and Discrimination by Kevin Lang and The Marriage Problem: How Our Culture Has Weakened Families by James Q. Wilson). In another section they approvingly cite the research on stereotype threat, but blacks in college actually have grades that are even lower than what you would expect from their SAT's (see No Excuses by Abigail Thernstrom). In another unpublished study, it turned out that the stereotype threat is created by a publication bias - studies of a stereotype threat that do not produce a significant result are not published, so their are many unpublished studies on the stereotype threat.

I think that also leads to my greatest criticism of the book, which is that its view of identities is somewhat incoherent. In their treatment of identities and gender the authors implicitly champion the blank slate view of human nature, which holds that people are infinitely malleable. We could raise boys to be nurturers who love babies and women to be aggressive and competitive. That view is simply wrong; there are biological constraints on our identities. Women are more nurturing than men in every known human society, regardless of how primitive. If nurturing were socially constructed then you'd expect some isolated tribe in Papua New Guinea to have nurturing men. (See
The Blank Slateby Steven Pinker who a good take down of the blank slate theory of human nature). One of the main reasons why women choose different jobs than men is because "pink collar" jobs are relatively friendly for leaving the workforce on an extended basis. It is easy for teachers to exit and enter the workforce, but engineers will have to learn many new skills as computers and technology change.

On the other hand, when the subject is racial identities, the identities no longer seem to be social constructs except in the weak sense that blacks chose their identities in response to the identities chosen by whites. It ignores the fact that there is a lot of wriggle room in human nature. In some parallel universe the 1960's never happened and out of wedlock childbirths in the black community didn't increase from 10% to 65%. The upshot is that this book ends out being a much weaker champion for identity economics than it could have been. I'd like to see the authors show that identities are their own engines of human destiny, and more than mere structural explanations for things we already know. My conclusion is that I found the book more valuable than the authors themselves!