“Did my advertising work?”
For decades, economics has been remarkably good at explaining how people respond to prices, wages, incentives and constraints. But there was something important missing from the equation.
People don’t behave only because something is financially attractive. They also behave because of who they think they are, who they want to be, and what people like them are expected to do.
That is the central insight behind George A. Akerlof and Rachel E. Kranton’s ‘Identity Economics’. The authors argue that identity and social norms belong inside economic analysis, not outside it. Their framework explains why people facing the same economic circumstances can make very different choices, and why conventional incentives sometimes work brilliantly and sometimes barely work at all. And there is an interesting connection to something much closer to business and marketing.
People don’t just consume media; they also consume media as part of their identity.
The person reading the New York Times, the person reading a niche woodworking blog, and the person watching Formula 1 content may all be the same individual. But each context can activate a different part of who that person believes they are.
That is precisely why identity matters economically.
The Blind Spot in Economics: Who We Think We Are
Traditional economics built an extraordinarily powerful model of the individual: a person has preferences, faces constraints and chooses the option that maximises utility. Over time, economists expanded this model to include more sophisticated preferences, psychology and behavioural biases.
But Akerlof and Kranton argue that another major element was still missing:
Social identity.
Their question was essentially:
What if people get utility not only from what they consume, but also from being the kind of person they believe they are supposed to be?
That changes the model considerably. Consider two people offered the same job, salary and bonus.
One thinks:
“This is exactly the kind of career someone like me should have.”
The other thinks:
“This isn’t who I am.”
The financial proposition is identical. The economic outcome may not be. That is the gap Identity Economics tries to fill. Kranton describes identity economics as a framework in which identities, not just pecuniary incentives,are primary motivations for choice, with social difference and norms at its heart.
1. Identity Changes Economic Choice
At the most basic level, Identity Economics says that people don’t simply choose between economic outcomes. They choose between outcomes and identities.
Someone might take a lower-paying job because it fits their conception of who they are. Someone might reject a financially attractive opportunity because it conflicts with their identity. The authors’ original framework was designed precisely to explain why people facing similar economic circumstances can make different choices.
To make this more concrete, let’s apply the Jobs-to-be-Done (JTBD) framework. JTBD helps us understand the core job a person is trying to accomplish, the progress they are trying to make, and then ask a deeper question: how does their identity shape the way they define that job, the solution they choose, and what “success” looks like?
JTBD lens
| Functional job: | Emotional/social job: |
| “I need to earn a living.” | “I want to earn a living in a way that makes me feel like the person I want to be.” |
Example:
Imagine two people offered jobs paying ₹30 lakh. One is a high-paying sales job. The other is a lower-paying role in education.
The first person might say:
“I want to be a high-performing business leader.”
The second might say:
“I want to be someone who makes a difference through education.”
The financial calculation alone doesn’t explain the choice. Identity completes the calculation.
2. Identity Changes the Power of Incentives
One of the most important implications of the theory is that the same incentive can have different effects on different people.
Traditional economics might ask:
“How much should we pay someone to do X?”
Identity Economics asks:
“How does doing X fit with how this person sees themselves?”
Akerlof and Kranton’s work on organisations specifically shows how workers’ self-image and their ideals about how their jobs should be performed can become important work incentives.
JTBD lens
| Functional job: | Social job: | Emotional job: |
| “Get my work done.” | “Be seen as a great professional.” | “Feel that I am doing the right kind of work.” |
Example:
A company offers employees a bonus for going above and beyond.
For one employee:
Bonus → extra effort
For another:
“We are the kind of people who take ownership.” → extra effort
The second mechanism can be more powerful because the behaviour has become part of the person’s identity. The employee isn’t simply working for the bonus. They are behaving like the person they believe they are.
3. Identity and Norms Become Part of Utility
This is the theoretical foundation of the book. Akerlof and Kranton don’t simply say identity is “important.” They show how it can be incorporated into economic modelling.
The traditional utility function considers things such as consumption and economic outcomes. Identity Economics adds the effects of categories, norms and ideals.
In simplified form:
Utility = Economic payoff + Identity payoff
If your behaviour aligns with your identity, you gain identity utility. If it conflicts with your identity, you experience an identity cost.
JTBD lens
Someone buys an expensive road bicycle.
| Functional job: | Social job: | Emotional job: |
| “I need a bicycle to exercise.” | “I am a serious cyclist.” | “I belong to the cycling community.” |
JTBD asks:
“What progress is this person trying to make?”
Identity Economics adds:
“What identity does making that progress confirm?”
The product is therefore doing more than solving a functional problem. It is confirming an identity.
4. Identity Shapes Organizations
Organizations are not simply collections of employees responding to compensation. They can create identities.
A company can tell employees:
“This is who we are.”
And:
“This is how people like us behave.”
That can influence behaviour even when no financial incentive is attached. Akerlof and Kranton’s work on organisations specifically examines how employee identity can become a source of motivation and how monetary rewards and punishments can sometimes create unintended consequences.
JTBD lens:
An employee doesn’t only have the job:
“Complete my assigned tasks.”
They may also have:
“Become a successful member of this organisation.”
| Functional job: | Social /emotional job: |
| “Hit your targets. That’s what you’re paid for.” | “We are owners. We solve problems before someone asks us to.” |
And once ownership becomes part of identity, the organisation may need fewer explicit incentives to generate the behaviour.
5. Identity Can Shape Evaluation and Discrimination
One of the book’s most powerful examples is the case of Ann Hopkins, a highly successful employee at Price Waterhouse. She had delivered exceptional professional results, including securing a major consulting contract, but her path to partnership was complicated by judgements about her behaviour and whether she conformed to expectations associated with gender. The broader lesson is important.
People are not always evaluated purely on:
“How well did you perform the job?”
They may also be evaluated against:
“Does this person behave like someone from the category we associate with this role?”
JTBD lens
| Functional job: | Social /Identity job: |
| “Perform successfully as a professional.” | “Perform successfully while also behaving like the kind of person we expect in this social category.” |
The difference may not be performance. It may be identity expectations. Identity Economics helps explain why.
6. Identity Shapes Education
Education is another area where conventional incentives can be insufficient.
A traditional economic model might ask:
“What is the financial return from completing school?”
Identity Economics asks:
“What kind of person does the student believe they are?”
The authors’ work on education treats the student as a decision-maker whose identity can be central to motivation and the school as a social institution that shapes those identities.
JTBD lens
| Functional job: | Social job: | Emotional job: |
| “Pass my exams.” | “Fit in with my peers.” | “Become the kind of person who is academically successful.” |
The same textbook, teacher and exam exist. But the identity attached to the task is different. That can change effort, persistence and ultimately outcomes.
7. Identity Shapes Gender and Household Decisions
Identity also changes how we understand household labour and careers. A conventional economic model might explain household decisions through wages, comparative advantage and opportunity costs. Identity Economics adds: What does society consider appropriate for a man or a woman? A person may therefore experience an identity cost from violating a gender norm, even when doing so would make economic sense. The authors’ foundational work explicitly applies identity economics to gender discrimination and the division of household labour.
JTBD lens
Suppose both parents can work from home.
| Functional job: | Social /Identity job: |
| “Take care of the child.” | “Be a good mother.” or: “Be a good father.” |
The economic calculation may suggest splitting household work 50/50. But if one person believes: “A good mother should handle most of the childcare,” then the decision is no longer purely economic. The person is performing an identity job.
8. Identity Can Influence Race, Poverty and Social Exclusion
The framework becomes even more powerful when identity is not entirely chosen by the individual. Society can assign categories. And those categories can come with expectations, stereotypes and constraints. The authors apply identity economics to poverty and social exclusion, arguing that identity and social categories can alter economic behaviour and outcomes.
JTBD lens
Imagine a young person from a low-income neighbourhood considering applying to an elite university.
| Functional job: | Social /Identity job: |
| “Improve my economic position.” | “Do people like me belong in this place?” |
The economic opportunity may be enormous. But if their social environment communicates:
“People like us don’t go there,” the barrier is not simply tuition or academic ability. It is identity compatibility.
9. Identity Creates Self-Reinforcing Systems
One of the most interesting implications of Identity Economics is that identity can reproduce itself.
Consider this cycle:
People believe “people like us don’t do X”
↓
They avoid X
↓
Few people from the group do X
↓
The lack of examples reinforces the belief
↓
Future members of the group also avoid X
But the reverse can also happen:
“People like us succeed at X”
↓
People pursue X
↓
More people succeed
↓
Role models emerge
↓
The identity becomes stronger
Identity therefore doesn’t simply explain behaviour. It can help create the environment that produces future behaviour.
JTBD lens
| Functional job: | Social /Identity job: |
| “Achieve X.” | “Prove that someone like me can achieve X.” |
10. Identity Changes How We Think About Business
This is where Identity Economics becomes particularly useful for business leaders.
Companies often ask:
• “What incentive should we give?”
• “What price should we charge?”
• “What feature should we build?”
• “What message should we advertise?”
Identity Economics suggests another question:
• “What identity are we helping the customer or employee express?”
JTBD lens tells us to look beyond the product and understand the progress the customer is trying to make. Identity Economics tells us that some of that progress is about becoming or signalling a particular kind of person.
Example: Apple
Jobs for someone buying a premium laptop:
| Functional job: | Social /Identity job: |
| “I need a powerful computer.” | “I am a creative professional.” Or: “I am someone who values design.” |
The product therefore solves both a functional job and an identity job.
Example: LinkedIn
| Functional job: | Social /Identity job: |
| “Help me find professional opportunities.” | “Help me present myself as a successful professional.” |
That identity layer can explain behaviours that pure utility models struggle to capture.
11. Identity Changes Economics Itself
The final point is perhaps the most important. Identity Economics isn’t merely another behavioural insight that can be added to marketing or organisational theory. Akerlof and Kranton argue that identity changes how economics itself should model human motivation.
The traditional economic person, the simplified Homo economicus, has preferences and responds to incentives. Identity Economics says: People also live within social categories and norms. And those norms influence what they want, what they avoid and how they evaluate their own choices. Identity as enriching economic analysis and identifies several ways identity changes economic reasoning.
JTBD lens
Traditional JTBD asks:
“What job is the customer hiring this product to do?”
Identity Economics makes us ask:
“What kind of person is the customer trying to become, maintain or signal while doing that job?”
That is a much deeper question.
One Framework to Put It All Together
The simplest way to understand the entire book is through one framework:
Traditional economics
Incentive → Choice → Outcome
Identity economics
Social category → Norms → Identity → Utility → Choice → Outcome
And then there is a feedback loop:
Outcome → reinforces norms → reinforces identity → influences future choices
The authors formalise this by expanding the standard utility function to include three identity-related elements:
- Social categories – who we see ourselves as, or how we are categorized.
- Norms and ideals – how people in those categories are expected to behave.
- Identity utility – the satisfaction or discomfort associated with behaving consistently or inconsistently with those norms.
This framework can then be applied to work, education, household decisions, gender, race, consumption and organisations.
The Takeaway
The genius of Identity Economics is not that it says identity matters. Most people intuitively know that it does. The important contribution is that Akerlof and Kranton put identity inside the economic model. They take something that economists might traditionally treat as sociology, psychology or culture and make it part of the explanation for economic behaviour.
That is where Identity Economics moves from being an economic theory to becoming a powerful lens for marketing, product strategy, organisational design, education and consumer behaviour.
And perhaps the most useful synthesis of Identity Economics + JTBD is this:
People don’t just hire products to get jobs done. They hire them to make progress toward the person they believe they are, or want to become.
That is the part of human behaviour that a purely economic model can easily miss.
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