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Akerlof and Kranton Reviewed by the Extremely Thoughtful Tom Slee

Tom Slee:

"Identity Economics" by George Akerlof and Rachel Kranton: A Rambling Review - Whimsley: Identity Economics explains many persistent social patterns... using the tools of rational choice... but it looks to the social phenomenon of identity as an important source of individual utility.... As they walk through their approach, identity reveals itself as a convincing and self-consistent approach to complex problems. It explains why the best choice available to some African Americans is to adopt an oppositional identity and to opt out of the mainly white job market -- even though they may be economically better off to adopt an insider identity and pursue a job. Adopting the identity of an insider route may gain them more money, but they will always fail to conform to what an “ideal insider” should be, and this failure will exert a cost (“blurring the edges of my being”). Adopting the identity of an outsider but pursuing a career in the white world will also gain them money, but they will suffer anxiety and as a result of “Uncle-Tomming” – what Glenn Loury calls a “dissonance between my self-concept and the socially imputed definition of who I am supposed to be... balancing my desire not to disappoint the expectations of others with a conviction that one must strive to live authentically.” Adopting an outsider identity and staying outside the working world will lose money, but will allow them to sustain a sense of living authentically. In this way, identity economics suggests that self-destructive behavior in marginalized communities is not the result of individual irrationality, or even of peer pressure to conform with existing destructive behavior, but can be seen as the best individual response to a world of low economic endowments and, among other things, to a high degree of social exclusion.... This is quite a different explanation for high incarceration rates, high out-of-wedlock birth rates, low employment rates, and a divergence in outcomes for African Americans [p. 99] to Becker’s model or economics models based on statistical discrimination or on peer-driven destructive behaviour....

[E]conomists, having trained themselves to see the world through the lens of earlier models, have a blind spot for other factors... have trained themselves to live in a world different from the one the rest of us live in. Steven Levitt of Freakonomics fame fell into this category, but recognized the role of identity when he was caught in a traffic jam:  

I had read their [A&K’s] papers, but in general have such a weak sense of identity that I never really understood what they were talking about. The first time I really got what they meant was when I realized that a key part of my identity was that I was not the kind of person who would cut in line to shorten my commute, even though it would be easy to do so, and seemed crazy to wait for 15 minutes in this long line. But, if I were to cut in line, I would have to fundamentally rethink the kind of person I was...

Most of Kranton and Akerlof’s efforts in promoting Identity Economics have been aimed at fellow economists, trying to convince them of the validity of the approach. But there is another group who could benefit from their work, and that’s sociologists.... The response from some members of the other social sciences has been the opposite to that of skeptical economists. Instead of dismissing identity as fluffy and unobservable, they have decried the approach as obvious.... Such a response misses the point.... Akerlof and Kranton... are doing something with identity that other social scientists have not done, and to ignore this is cutting off their nose to spite their face. So what do sociologists, who recognize and understand identity, have to gain from identity economics? One answer is a single word: equilibrium, and my main disappointment with A&K’s book is that in simplifying their research they have avoided, even once, mentioning this crucial concept....

I think I can see why A&K chose to avoid spelling out the game theoretic portions of their investigations. To do so would have made a much longer and more difficult book, and so would have limited the audience. Yet as it stands the book presents what is really a theoretically sound, logically consistent methodology as if it were an identification of important factors in a situation coupled with rough and ready inferences. It underplays the work they have done. That work is still available in the papers, of course, but if the book is the way the ideas are transmitted, readers are missing an important piece of the puzzle.

What game theory brings is an explanation of why certain patterns persist, and the introduction of identity extends these explanations to many important patterns. It is all very well to say that there are norms associated with the roles of women and men in the workforce, but such a statement is descriptive only. It does not explain how such norms sustain themselves, or why norms sometimes collapse (gays cannot marry, animals have rights). Identity economics spells out, qualitatively at least, how norms can be sustained in some cases while not in others. If the equilibrium of a model is one in which nobody chooses to be an outsider, the social category of “outsider” will vanish: left-handed people will cease to be sinister, for example....

So you can see that I found much to admire here. I do wish the authors had brought more of the game theory background into the book; the notion of equilibrium would have made some passages more convincing to those who have not read the papers, but to this outsider it seems that both economists and sociologists have a lot to gain from studying this work: let’s just hope it doesn’t go too much against the prescriptions associated with their social categories as economists or sociologists to do so.

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