Working Paper: CEPR ID: DP6123
Authors: Roland Bénabou; Jean Tirole
Abstract: We analyze social and economic phenomena involving beliefs which people value and invest in, for affective or functional reasons. Individuals are at times uncertain about their own 'deep values' and infer them from their past choices, which then come to define 'who they are'. Identity investments increase when information is scarce or when a greater endowment of some asset (wealth, career, family, culture) raises the stakes on viewing it as valuable (escalating commitments). Taboos against transactions or the mere contemplation of tradeoffs arise to protect fragile beliefs about the 'priceless' value of certain assets (life, freedom, love, faith) or things one 'would never do'. Whether such behaviours are welfare-enhancing or reducing depends on whether beliefs are sought for a functional value (sense of direction, self-discipline) or for 'mental consumption' motives (self-esteem, anticipatory feelings). Escalating commitments can thus lead to a 'hedonic treadmill', and competing identities cause dysfunctional failures to invest in high-return activities (education, adapting to globalization, assimilation), or even the destruction of productive assets. In social interactions, norm violations elicit a forceful response (exclusion, harassment) when they threaten a strongly held identity, but further erode morale when it was initially weak. Concerns for pride, dignity or wishful thinking lead to the inefficient breakdown of Coasian bargaining even under symmetric information, as partners seek to self-enhance and shift blame by turning down 'insultingly low' offers.
Keywords: Anticipatory Utility; Bargaining; Hedonic Treadmill; Identity; Memory; Religion; Self-Control; Self-Image; Self-Serving Beliefs; Taboos; Wishful Thinking
JEL Codes: D81; D91; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information scarcity (D83) | identity investment levels (H73) |
| identity capital (E22) | identity investment levels (H73) |
| identity investment levels (H73) | hedonic treadmill effect (D11) |
| strength of prior beliefs (D80) | identity investment levels (H73) |
| identity investments (Z13) | responses to identity threats (Z13) |
| weakly held identity (Z13) | conformity effects (C92) |
| strongly held identity (Z13) | counter-reactions (D74) |