Identity economics suggests that we make economic decisions based on monetary incentives and our identity. A person’s sense of self or identity affects economic outcomes. This was outlined in Akerlof and Kranton’s (2000) seminal paper which expanded the standard utility function to include pecuniary payoffs and identity economics in a simple game-theoretic model of behavior, further integrating psychology and sociology into economic thinking.

When economic (or other extrinsic) incentives are ineffective in organizations, identity may be the answer: A worker’s self-image as jobholder and her ideal as to how her job should be done, can be a major incentive in itself (Akerlof & Kranton, 2005). Organizational identification was found to be directly related to employee performance and even indirectly related with customer evaluations and store performance in a study on 306 retail stores, for example (Lichtenstein et al., 2010). Also, when employees were encouraged to create their own job titles such that they better reflected the unique value they bring to the job, identification increased, and emotional exhaustion was reduced (Grant et al., 2014). In some cases, identity can also have negative implications. Bankers whose professional identity was made salient, for example, displayed more dishonest behavior (see honesty).

 

Akerlof, G., & Kranton, R. (2005). Identity and the economics of organizations. Journal of Economic Perspectives, 19(1), 9-32.

Akerlof, G., & Kranton, R. (2000). Economics and identity. The Quarterly Journal of Economics, 115(3), 715-753.

Grant, A., Berg, J. & Cable, D. (2014). Job titles as identity badges: How self-reflective titles can reduce emotional exhaustion. Academy of Management Journal, 57(4), 1201-1225.

Lichtenstein, D., Maxham, J. & Netemeyer, R. (2010). The relationships among manager-, employee-, and customer-company identification: Implications for retail store financial perfor-mance. Journal of Retailing, 86(1), 85-93.