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Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being [Hardcover]

George A. Akerlof , Rachel E. Kranton
4.0 out of 5 stars  See all reviews (2 customer reviews)
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Book Description

10 Feb 2010

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.



Product details

  • Hardcover: 192 pages
  • Publisher: Princeton University Press (10 Feb 2010)
  • Language: English
  • ISBN-10: 0691146489
  • ISBN-13: 978-0691146485
  • Product Dimensions: 1.9 x 16.2 x 24.3 cm
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (2 customer reviews)
  • Amazon Bestsellers Rank: 464,098 in Books (See Top 100 in Books)
  • See Complete Table of Contents

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Review

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

"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."--New York Times

"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

"[A]n important new book. . . . Professor Akerlof and Rachel Kranton have invented Identity Economics."--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 a useful apparatus to take measure of 'real people in real situations.'"--Barron's

"Business managers, economists, policy makers, and school administrators will all gain fresh insights into similar enigmas that confront them if they bear the book's message in mind: identity matters."--ForeWord

"[A] lucid look at how social considerations carry economic consequences. . . . The authors use the word 'identity' as shorthand for the way people divide themselves into social groups, each of which--like high-school Jocks and Burnouts--has a sense of how to behave."--James Pressley, Bloomberg News

"The essence of the book is to place social contexts at the heart of an individual's decision-making. Tastes vary with social context, and concepts such as identity and norms influence the outcome."--Mint

"This is a completely new idea, which, in essence, says that one effect of being in an increasingly liberal and affluent society is that aspects of identity that previously didn't seem to matter much to economists are consciously influencing our behaviour."--Trevor Phillips, Prospect

"[Akerlof and Kranton] present the material in a very readable and entertaining way. Their findings are that economic behavior is governed by one's social category, by the norms of that social assignment, and by how one views one's identity in that social context."--Choice

"[B]y the end of the book, my overwhelming feeling was that the authors had made a pretty robust case for why our profession should pay greater attention to the social structures that underpin our economic decisions. For this, they should be highly commended."--Samuel Tombs, Business Economist

"Identity Economics provides the broader, better vision that we need."--New Economy

"The book provides a solid basis for a plethora of future research, especially in the field of behavioural economics. . . . Identity economics is a step forward, progressing economic theory and understanding a little further along the path from Homo economicus to Homo sapiens."--David A. Savage, The Economic Record

"Akerlof is one of the most imaginative thinkers in neoclassical economics, and his earlier work on information economics essentially sparked off a revolution which dramatically changed the nature of the subject. Any work by him is worth pursuing."--Priyodorshi Banerjee, Economic & Political Weekly

"Identity Economics marks a very significant contribution to the ever-growing economic literature incorporating nonmonetary motives to explain behavior and as such it is highly recommended reading for social scientists."--Andreas P. Kyriacou, Public Choice

"This book is a must read for any social scientist whose interests lie in the intersection of economic analysis and real-world context and situations. While decidedly a trade book, the substantial list of references and strong foundations in the economics literature provide further reading for those who may be more mathematically inclined. Overall, the book was an interesting and informative read providing a framework for analysis not usually offered elsewhere."--Gabriel R. Serna, Journal of Economic Issues

"By demonstrating the ways identity and social norms guide economic behavior, Akerlof and Kranton present a powerful challenge to conventional economics--and our everyday assumptions about human behavior."--World Book Industry

From the Inside Flap

"In the regular economic discourse of markets and taxes, we often forget about the forces that truly make a large difference in our lives. In Identity Economics we sit on an economic porch with Rachel Kranton and George Akerlof, observing what we care about most--our identity."--Dan Ariely, author of Predictably Irrational: The Hidden Forces That Shape Our Decisions

"In Identity Economics, George Akerlof and Rachel Kranton team up to bring people and their passions into economic analysis. Moving away from conventional accounts, they propose a bold paradigm to explain why and how identity and social norms shape economic decision making. With verve and insight, the book transforms standard economic understandings of organizations, schools, gender segregation, and racial discrimination. This new enlightened economics opens up a bright future for serious collaboration between economists and sociologists."--Viviana A. Zelizer, author of The Purchase of Intimacy

"This intriguing book shows how much can be learned when you add the tools of economics to the other intellectual resources now available for thinking about the power of identity. George Akerlof and Rachel Kranton report the results of technical modeling without immersing the reader in the technicalities. The result is an accessible work of commendable clarity."--Kwame Anthony Appiah, author of The Ethics of Identity

"Identity Economics blends elements of psychology with traditional economic analysis. The writing is clear, interesting, and light on jargon. The interplay between theoretical predictions and concrete examples is particularly successful. It brings fascinating developments at the frontier of economics within reach of a wide audience."--H. Peyton Young, University of Oxford

"Identity Economics is full of creative and interesting thoughts that will delight and intrigue those who read it. The writing is lucid and accessible with a minimum of standard economics jargon, making it possible for the book to have a wide readership across the social sciences."--Timothy Besley, London School of Economics and Political Science


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1 of 1 people found the following review helpful
5.0 out of 5 stars Identity Economics 10 July 2012
By Rolf Dobelli TOP 500 REVIEWER
Format:Hardcover
Biting into an economic text often tastes like dry toast, but this book has flavor and a lot of soul. George A. Akerlof, the 2001 Nobel laureate in economics, and Rachel E. Kranton, an economics professor, use a refreshing style to showcase their innovative exposition. They muster telling examples from playground politics to courtroom theatrics to explain how race, gender and class shape individual economic decisions. Now and then, they get stuck in academic prose and repeated explanations about the difference between their persuasive identity-based model and traditional economic analysis, but the model does persuade. The authors offer generous servings of tasty facts, chewy analysis and lively case histories. This is economics seasoned with real-life spice. getAbstract recommends this definitional book to specialists in persuasion, consumer product managers, educators and anyone trying to read the tea leaves of economic patterns.
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1 of 4 people found the following review helpful
3.0 out of 5 stars awkward 12 Oct 2010
Format:Hardcover
It found itself in an awkward space between an academic text book and a popular business book. Thus it was far to shallow for a text book yet wildly impractical as a business book.
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Amazon.com: 3.8 out of 5 stars  19 reviews
22 of 27 people found the following review helpful
5.0 out of 5 stars Everyone has 1 or 2 identities. 1 they see themselves having, & 1 others see them having. But only some can lead to success! 27 Feb 2010
By Jeff Lippincott - Published on Amazon.com
Format:Hardcover
I loved this book. I decided to read it after skimming its Table of Contents and discovering that it would probably be a good companion book to another book I recently read and reviewed: Teaching As Leadership: The Highly Effective Teacher's Guide to Closing the Achievement Gap. And I suspect a good companion book to the instant book would probably be Drive: The Surprising Truth About What Motivates Us. As a collective unit, all three books seem to indicate that people can be successful but the roadmap to get there is not clear-cut. Some people can take the bull by the horns and overcome obstacles. While others will just go with the flow or do what is expected of them and simply exist. By reading these three books one can probably get a better handle on how to plan and strategize their own roadmap to success.

I found "Identity Economics" to be well outlined and written. And I agree with everything it says. People are born into socio-economic classes. They are either male or female. They have parents and family with existing identities. And they live in communities with certain norms and rituals that further provide them with identities. All in all, people are trapped in the identities they SEE THEMSELVES having. And they are trapped in the identities OTHERS SEE them having. The good news is that these "cages" can be opened if a person puts his or her mind to it. But they have to know the cages exist in the first place. By reading this book you will understand that cages do exist.

The book covers race, sex, and economic status. And these things play out in both a person's schooling, and later on in work life. For example, how is a kid growing up in a slum neighborhood of NYC supposed to take school seriously, get good grades and SAT scores, and go to an Ivy League college if his identity is inconsistent with doing these things? He has to live among his peers in his urban school, and those peers will think of him as "less than" if he takes school seriously. A movie that exemplifies this point is Finding Forrester where Jamal Wallace was a serious reader and could score very high on standardarized tests, but he was a C student in school so his friends would not think less of him.

It's unfortunate that a person's identity is so critical in everything to do with life (school, work, and socially). But it is. And this book does a wonderful job explaining just how important identity is, and how important it is for someone to understand how to develop that identity so they can do what they want to do in life. 5 stars!

PS. Take a look at the Search Inside feature Amazon provides for this book. There you can see the Table of Contents.
14 of 17 people found the following review helpful
4.0 out of 5 stars Economics Grows Up 19 April 2010
By Hagios - Published on Amazon.com
Format:Hardcover|Verified Purchase
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!
10 of 13 people found the following review helpful
5.0 out of 5 stars Concise, Relevant, Documents New Knowledge, Respects Work of Others 7 July 2010
By Robert David STEELE Vivas - Published on Amazon.com
Format:Hardcover|Verified Purchase
This book is a solid five, and one of those instances when brevity adds value. While I was concerned to see no discussion of "true cost" economics and the book is overly fawning on Goldman Sachs (written before Goldman Sachs was exposed for its multiple fiscal crimes against both investors and governments), the superior References, Notes, and Acknowledgements balanced this out. This work began in 1995.

This is an engrossing book and it immediately overcame my general disdain for economists, most of whom have only recently discovered information asymmetries and most of whom refuse to recognize that corruption in the US government and cheating across the US economy is fully the equivalent of transnational organized crime in cost to society.

Overall I consider this book very useful as both an overview (with most impressive "by name" citation of prior art on every page) and as a critique of conventional economics. This book is an excellent complement to the book I just reviewed, The Hidden Wealth of Nations and will be complemented by the book I will review next week, Building Social Business: The New Kind of Capitalism That Serves Humanity's Most Pressing Needs. See also my review of Nobel-worthy The Fortune at the Bottom of the Pyramid, Revised and Updated 5th Anniversary Edition: Eradicating Poverty Through Profits.

Core concept: IDENTITY is actualized psychological norms within a social context.

QUOTE (page 8): Identity economics restores human passions and social institutions into economics."

Bravo. See my reviews of Radical Man and The Manufacture Of Evil: Ethics, Evolution, and the Industrial System as well as 1491: New Revelations of the Americas Before Columbus and The Wealth of Networks: How Social Production Transforms Markets and Freedom. We are on the verge of a socio-economic, ideo-cultural, techno-demographic revolution, and I know of no government that "gets it" although I consider the Nordics to be gifted in the areas needed to create what I call INTELLIGENCE for EARTH: Clarity, Diversity, Integrity, & Sustainability.

The book is extraordinary in part because the authors, one of them a Nobel laureate, take pains to identify and respect all those who have made intellectual contributions, and especially Gary Becker, who coined the term "Social Economics" and has many superb books to his credit.

This book is at the intersection of social economics, ideo-cultural value definitive, and techno-demographic leveraging. All of these represent "what people care about" and ultimate give me two bottom lines:

1) We know next to nothing about what George Will calls Statecraft as Soulcraft; and

2) Identity can be monetized--identity is the ultimate "intangible" value only it is actually very tangible.

The book offers a number of observations that I would think need to be read and reflected on more than once.

+ Cultural training *will* lead to individuals making choices harmful to themselves (those of us who have served in the military know the culture that leads one to jump on a grenade to save others)

+ Internalized norms fall apart when one person cheats--this is the "broken window" in the cultural framework and I cannot help but think of such books as The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead; The Global Class War: How America's Bipartisan Elite Lost Our Future - and What It Will Take to Win It Back; and my own Election 2008: Lipstick on the Pig (Substance of Governance; Legitimate Grievances; Candidates on the Issues; Balanced Budget 101; Call to Arms: Fund We Not Them; Annotated Bibliography).

+ BIG INSIGHT: Monetary incentives are counter-productive in team environments that succeed in creating a culture of identity that fosters teamwork, where mission understanding and commitment are core to performance.

+ The authors do a fine job of focusing on the mis-direction of schools, points out that despite what Carnegie and Rockefeller intended, schools should NOT be factories, they should be social institutions with a socialization role, helping every child BELONG. I see my own three teen-agers in how they describe the nerds and jocks as accepting of authority, the others (Goths plus) as not. I am especially impressed by the discussion of schooling that offers many choices while demanding independent thinking and avoiding insider-outsider fissures.

The discussion of the military is disappointing. Neither of these individuals has a visceral understanding of this culture, they are weakest here.

+ The discussion of the division between management and men being counterproductive is a good one. See Lionel Tiger above. When management thinks the men are commodities, the social value, the intangible value that this book speaks to, is lost.

+ The quality of teachers is emphasized by this book and I am again forced to recognize that too many school districts accept mediocrities because that is what the teacher schools are putting out. The quality of the teacher makes a HUGE difference as described by these authors, and I feel a sense of despair in realizing there is no one at all in Washington or any other national capital that cares about this.

+ Gender segregation is an area where the authors teach me. I had no idea two thirds of our work force (in the USA) is separated by gender, or that gender "norms" sabotage the effectiveness of the "outside" gender seeking to work.

+ HARRASSMENT LOWERS PRODUCTIVITY. I am fascinated by the authors' discussion of how some businesses choose to forego diversity as a means of keeping a more contented "red neck" workforce that costs less, versus striving for diversity and paying the extra wages needed to make it stick.

The authors are compelling and most interesting in refuting all notions that the "market" might solve social inequalities, and state with assurance that a combination of government intervention and a broad social movement are necessary to overcome the pervasive obstacles to achieving equality.

Although I have read a number of books on poverty, I am surprised to learn that two thirds of black children in America are living with a single mom, and that three fifths of the mothers are living in poverty--and if one looks at books such as An Atlas of Poverty in America: One Nation, Pulling Apart 19602003, the draconian concentration of wealth at the top is matched by the unnerving increase in the numbers of those in poverty in America. See also my review of Nobodies: Modern American Slave Labor and the Dark Side of the New Global Economy.

I am deeply impressed by the discussion of residential uplift programs that mix white and black, rich and poor, and have a vastly greater effect because the uplift programs by being residential (full time) are teaching more than job skills, they are teaching social skills.

The authors focus overly much on the insider-outsider model of understanding, and do not address information asymmetries as much as they could --the term appears only twice.

The other negative is the lack of any reference to Open Money, which does assign value to everything, most of it intangible value vice "hard cash" value.

The authors conclude that there are five ways IDENTITY changes economics:

1. Individual actions (e.g. body art and giving)

2. Externalities (e.g. getting along or not, free riders or not)

3. Creating and leveraging categories (e.g. politics, religion, advertising)

4. Identity & regret (buy the book)

5. Choice of identity (mothers versus managers, school choice, immigration with or without assimilation).

This is a serious book, a substantive contribution, at least for a non-economist such as I, and I ended my reading by examining every single reference in the bibliography, which is extensive.

Five stars, no question at all in my own mind.

I have a note, "Ethnography as foundation for economics of intangible systems of system valuation."

NOTE: Amazon limits me to ten hot links, which I do not understand. I have learned how to preserve all the links, my review with all links active can be found at Phi Beta Iota, the Public Intelligence Blog, where you can also browse all my reviews easily sorted into the 98 categories in which I read.
3 of 3 people found the following review helpful
4.0 out of 5 stars A book for any true economics enthusiast 10 Jan 2011
By Hmph - Published on Amazon.com
Format:Hardcover
"Identity Economics" is not a book for the casual reader. The book's content is systematic, much like economics journal articles, and contains sections for their hypotheses, methodology, procedure for experiment, conclusion, etc. Some people claim that this book is a "layman's approach" to the science of identity economics, and I would have to disagree. If you don't want to read something at college level, this book isn't for you. However, if you're serious about studying economics, especially behavioral economics or a similar branch, then you might want to read this book.

Identity economics (IE) is a new field within the greater but also relatively new field of behavioral economics. IE looks at the decisions people might make based on some aspect of themselves: their gender, their race, their religious beliefs, etc. The main point that Akerloff and Kranton are getting across to readers is that people can be insiders or outsiders in a given situation, and there are more benefits than costs for an organization (e.g. firm, educational institution, military, etc.) in making their members an "insider".

I'll give a few examples that come from the book. In traditional economics, theory would cause us to believe that philanthropic adults would invest money into places that need more help. One might donate to a college they've never attended if they truly think their dollars will cause the greatest amount of benefit per dollar. However, that's not usually the case. People tend to donate to their Alma maters rather than colleges in need, because they identify with that particular school and felt like an "insider" when they attended the school. Thus, it's a good idea for school administrators to invest in increasing school spirit and making all kinds of students feel welcome. The authors justify this with real life instances in which students caused havoc and learning was disrupted because some students couldn't identify with their teachers.

The authors also examine the popular topics of gender wage inequality and occupational segregation, and put it into the perspective of identity economics. Women are significantly underrepresented in engineering and certain other science fields, while there are low percentages of men working as secretaries, nurses, or elementary school teachers. The authors even mention instances when women in traditional men's fields (e.g. mining) were verbally and physically harassed by the male coworkers, to the point that they sued the companies. In cases like these, it was hard to make these women feel like an "insider", since they obviously wouldn't change genders just to adjust better to the work environment.

There are plenty of other examples they discuss and the right way to analyze the situation using theory from identity economics, so do read this if you'd like to know more about this topic. I wouldn't consider identity economics to be a "breakthrough field" because it builds on findings from other fields of economics, psychology, and sociology. The book itself can be a bit dry at times. Still, this is a great book, and I think professors who teach relevant subjects should consider making students read and discuss this work. In any case, the content of this book is a lot better researched and cited than the popular "Freakonomics", even though both books cover some of the same ground.

I look forward to seeing more research done on this field, so that the field of identity economics can stand on its own. As Nobel prize-winning Akerloff writes, "We have every reason to believe this is just the beginning."
3 of 3 people found the following review helpful
5.0 out of 5 stars Do not miss reading this book 3 Oct 2010
By B.Sudhakar Shenoy - Published on Amazon.com
Format:Hardcover
Classical Economics has always considered people to be rational. It is about rational decisions and outcomes while dealing with income and consumption. Even if there is irrationality in individuals, it gets set off in the aggregate, and the final outcome is still rational. This fundamental assumption was challenged in Akerlof"s earlier book "Animal Spirits" (Coauthored with Robert Schiller), with a clear and convincing argument that human motives are not always driven by economic gains and similarly not all responses are rational.

This book is an excellent and logical extension of the earlier book in the field of Behavioral Economics.

The great Indian cartoonist R.K. Laxman, a few decades ago took pity on the plight of the common man in India and wanted to portray him in his series of outstanding and humorous cartoons. The idea was to talk to some "common" people and find out about their typical problems and draw some cartoons in a leading newspaper. To his utter surprise, he could not find a single "common" man in a population covering one sixth of humanity. The typical responses were "I am a teacher", `I am an accountant" or "I am unemployed". No one wanted to be a "common" man. Everyone had an IDENTITY.

The study of how this human identity affects human behavior and economic decisions is at the core of this book.

To make things simple, the authors have used a very elegant framework that is applied it to different situations - Economics of Organizations, Gender and Work, Race and Minority Poverty, Economics of Education with brilliant examples of illustration and analysis.

An individual who joins an organization from the labor market typically does so based on a legal and economic contract, after comparing different available employment choices. She is an "outsider" who has been hired by the organization to perform a particular job. Now comes the distinction between "Outsiders" and "Insiders" of the organization. An Insider is one who considers herself to "belong" to the organization or IDENTIFIES herself to be an integral part of it, and is fully motivated to do her best to further the interests of the purpose of the organization. It is not about how much one is compensated or the hierarchical position, but about what one identifies oneself with. Insiders perform at much higher levels of commitment and are known to walk the extra mile. The economic contract now is replaced by an emotional binding with the organization for "Insiders".

The question for us then is, can we turn "Outsiders" into "Insiders" in our organizations? The example of the United States Military Academy at West Point amply demonstrates this. The structured rigorous training puts "Service before self". The armed forces create officers out of boys, who are prepared for the supreme sacrifice at the call of duty in defense of their Motherland.

This brings us to the point that Identity can be understood, and also influenced and changed. Advertisers and politicians are experts at "manipulating" identity. The famous advertisement by a cigarette company: "You've Come a Long Way Baby", was aimed at women whose gender (identity) norms did not encourage smoking.

Identity is based on what social category the individual maps herself to. Each of these social categories has norms and ideals. The person's utility function is an outcome of such norms, and not just rational economic choices, argue the authors.

I found this book extremely insightful and practical. An operational toolkit for deployment in relevant situations spanning individuals, teams and organizations, both from a micro and macroeconomic perspective would be the next logical piece to put this great book to good use.

Do not miss reading this book.
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