ACE 476 Beller
Every person who engages in economic choices is in some way or another emulating the theories from Identity Economics. George Akerlof and Rachel Kranton, the authors of the book, delve deep into how people think they and others should behave, how society teaches them how to behave, how people are motivated by these views, and how to provide a rationale for certain economic choices that previously could not be explained. The authors’ research provides a framework of decision making where social context matters and where a person’s identity is tantamount to pecuniary goods and non-pecuniary goods. By researching “real people and real situations,” Akerlof and Kranton create a new utility function for Modern day economics (Akerlof & Kranton, 8). The book Identity Economics, begins by establishing the criteria for their framework. The criterion it uses includes social status, societal norms, and a person’s identity, which gets coupled into the broader term of identity. Akerlof and Kranton posit that this identity is molded by the social categories an individual finds himself or herself placed into, the ideal actions that a society dictates for an individual’s social categories, and the observations an individual sees and absorbs. Following the theory logically, that identity lays the foundation for how one behaves, decides, and thinks. Essentially, the social categories that an individual chooses or is born into and consequently the norms an individual follows, provides the foundation for his or her identity. After the book discusses what constitutes an identity, it provides applications to the term. Akerlof and Kranton start off by specifying the standard component of someone’s utility: tastes for goods, services, or other economic outcomes, and then they incorporate the identity elements: social categories, the norms and ideals for each category, and the identity utility, which is the gain when actions conform to those norms and ideals. So, what the latter describes is a utility function based off what a person’s tastes and preferences are, and what identity that person has. One real life example, Akerlof and Kranton utilize involves how women in the 1920’s allowed societal norms to dissuade them from smoking cigarettes, even though the taste and utility derived from cigarettes would be equivalent for male and female. So in that particular example, through this societal norm, women smoked less than males. As time progressed and society became more accepting towards the idea of women smoking, consumption of cigarettes increased until women smoked as much as men. The reason why this new utility function confirms the latter application is easily followed: dependent on how society thinks of one and how one thinks of herself or himself, one can find the actual consumption level, as opposed to just ones tastes and preferences. The book then continues on to discuss why norms play such a heavy role in our behaviors. Akerlof and Kranton state it accurately when they indicated, “People have Individualistic tastes in their utility function, but norms also enter into it. Individuals acquire some of these tastes and learn some of these norms as members of their communities. These norms may be internalized through mechanisms of community approval and disapproval (Akerlof & Kranton, 22).” This quote signifies why humans do not always behave according to the standard utility function. This is due to our desire to fit in with our communities, which pushes people toward certain behavior that would not correspond to traditional economic thought. After the theory and functionality of Identity Economics is explained, the reader is shown the practical usage. The first area that the authors seek to yield new conclusions in, based off this new utility function, involves the work setting. They illustrate how money is not the only factor that promotes better work ethic, by creating the...
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