I’m taking a behavioral economics class this fall called, simply, “Psychology and Economics.” I’m fascinated by this branch of econ, as pure rationality models have been shown to be very weak in explaining some behavior. Unfortunately, this is an underrepresented area at NYU; on the other hand, our rationality and game theory faculty is probably #1.
When we examine people’s decisions from the perspective of their identities and social norms, we get new answers to many different economic questions. Who people are and how they think of themselves is key to the decisions that they make. Their identities and norms are basic motivations. We call this approach identity economics.
The most important determinant of whether an organization functions well is not the monetary incentive system, as standard economic models would imply, but whether its workers identify with the organization and with their job within it. If they do not, they will seek to game the incentive system, rather than to meet the organization’s goals.
Likewise, good schooling occurs not as a result of monetary rewards and costs – the stock-in-trade of conventional economics – but because students, parents, and teachers identify with their schools, and because that identification is associated with learning. Moreover, whether students identify with being in school becomes the major determinant of whether they stay or drop out.
Granted, they were discussing high school education, but I think the concept holds at the college level. Take a look at this, from a David Leonhardt post pushing back on his paper’s article suggesting students might want to skip college:
Students who had good enough grades and scores to be admitted to a flagship state university but instead chose a less selective college that was closer to home, for example, were less likely to graduate than similar students who did attend the flagship college, the authors [of a recent Princeton U Press book] found. Being surrounded by students who expect to graduate, among other things, seems to make a big difference…
These patterns suggest that many students who could be graduating from college are not now doing so.
Like I noted a couple days ago, if schools were held accountable for educating well, fostering a culture of learning, and getting their students to graduation, the college market would start to look a lot more sane. “Identity economics” would begin to reward good schools financially. More students would graduate and tuition would start to be attached to good outcomes, not blind assumptions based on prestige and selectivity.