The Economics of Identity

What is the “economics of identity?” In fact, the meaning of that expression is ambiguous and contested (Kirman and Teschl 2004; Fine 2009). Many nonetheless associate it with Akerlof and Kranton’s (2000) proposal to introduce the concept of social identity into economics by expanding the traditional Homo economicus utility function to include a set of self-images associated with the individual’s different social identities. On that view, people gain or lose utility according to how their social identity self-images are affected by their interaction with others. However, this does not explain the role that individuals have in determining which social identities they wish to have. That would entail having some account of how individuals choose certain social identities and also some explanation of the extent to which they are influential in determining what social identities they have. That is, it would entail having some understanding of the relationship between who they are, or what their personal identity involves, and their many social identities. Akerlof and Kranton, though they do not refer to personal identity, implicitly equate it with the individual’s utility function. However, because the utility function only tells us how people are affected by their social identities, it does not allow us to say how they influence their determination, thus making it the choice of the economic modeler to say what social identities individuals have. That is, with no real account of personal identity, they are unable to explain the relationship between personal identity and social identity.

I argued in the previous chapter that on a capabilities conception of the individual people’s development of their capabilities goes hand in hand with their development of a special personal identity capability that allows them to keep narrative accounts of themselves. If one capability they develop, then, is of being able to elect particular social identities, how they keep narrative accounts of themselves constitutes a way of explaining the relationship between personal identity and social identity. Yet it would be a mistake to say that their doing this gives people complete freedom to determine what social identities they will have. Recall from Chapter 3, then, that in contrast to the psychology’s social identity approach and Turner’s self-categorization theory (Turner 1985) that Akerlof and Kranton draw on, the sociological approach to identity assumes that individuals and social groups mutually influence one another. On this view, the personal and social identities of individuals and also the identities of social groups are all mutually determined. On the one hand, the social construction and assignment of social categories to individuals influences what social groups they belong to and thus what social identities they elect. This in turn influences their personal identities. On the other hand, the social groups individuals belong to and the social identities they elect influences the formation of social groups and the construction of social categories used to represent those social groups. This frames the evolutionary-relational side of the individual conception developed previously in much broader terms that allow us to begin to capture the more indirect social influences that operate on individuality. In effect, what we try to do here, then, is locate that individual conception in an “identity dynamics” (Potts 2008) that operates across individuals and groups.