Professor Rachel Kranton: “Identity, Context, and the Evolution of Homo economicus”

The human beings in classic economics models look nothing like real people. Classic models are populated by stick figures, who have individual preferences for goods and services and who maximize utility subject to budget constraints. Real humans, however, are social beings, with names, families, and communities, and who describe themselves and others in terms of gender, class, religion, and nation. To provide a more fulsome analysis of economic behavior and outcomes, economics needs an evolved model of Homo economicus to capture these features. Identity Economics provides a framework to capture such social categories and the related prescriptive norms for how people should behave and interact.

In this lecture, Professor Kranton, James B. Duke Professor of Economics at Duke University, first describes the basic economic model of identity, and then discusses three areas of economic research where the identity framework has been fruitfully applied: (i) labor supply and occupational choice; (ii) the study of social preferences, identity, and group divisions that are a source of bias in income allocations; and (iii) political economy models that incorporate national and class identity, which give patterns of inequality that match the data.

The lecture continues with a discussion of the overall fitness of economic models with this evolved Homo economicus, employing the criteria of parsimony, empirical relevance, and the ability to inform social policy. Professor Kranton shows how Identity models meet each of these criteria.

The lecture concludes with two suggested areas of research that should include a Homo economicus who is attentive to social identities, the economics of organizations and societal inequality.

About the Symposium:

David M. Kreps Symposia comprise a series of symposia on topics of broad interest to the faculty of the Graduate School of Business. The series was created through the generous support of friends and alumni of the GSB, to honor the career of Prof. Kreps.

This symposium was titled "Homo economicus, evolving." In orthodox economic models, the individual agent, Homo economicus, is self-interested and rational, with fixed preferences and perfect foresight. However, economists are increasingly modeling individuals who are generous to others, who have preferences that depend on the context and that change, and who have cognitive limitations. This evolving vision of Homo economicus has profound implications for what we learn from economic analyses. The symposium will discuss this continuing evolution of economists’ representations of people’s motives and cognitive capabilities, and the implications of this evolution for specific contexts and public policy and, more broadly, for the discipline.

Visit the conference page: https://www.gsb.stanford.edu/faculty-research/faculty/conferences/homo-economicus-evolving