Ronnie Schöb Recommends “Economics and Identity” by George A. Akerlof and Rachel E. Kranton

Abstract

People want to be happy, but happiness cannot be derived merely from economic prosperity. Economists became more and more interested in other values that determine individuals’ well-being and thus affect their behavior. Social psychology proved helpful in highlighting the great importance of social identity on subjective well-being, and George Akerlof and Rachel Kranton deserve credit for bringing these considerations to economic reasoning. They argue that social identity strongly affects economic outcomes, and incorporating the concept of identity into an economic model of behavior thus allows a better understanding of many decisions that individuals make when interacting with others.