Nobel-Prize-winning Professor George A. Akerlof delivered the second part of this year's Wellington-Burnham Lecture and Domestic Policy Forum, titled "Economics and Identity," in Barnum 008 last night to a crowd of over 120 students and teachers.
Akerlof's was the second lecture in the two-part series sponsored by the Economics Department, the first of which was delivered on Monday by Harvard psychologist Mahzarin Banaji.
President Lawrence Bacow introduced Akerlof as a Professor of Economics at the University of California-Berkeley, a 2001 recipient of the Nobel Prize in Economics, and the President of the American Economics Association in 2006, saying that he could "go on and on" about Akerlof's many achievements.
Bacow said that he read Akerlof's best known work, an article entitled "The Market for Lemons: Quality Uncertainty and the Market Mechanism" as a sophomore at MIT. This article examines the phenomenon of asymmetrical information in markets and economics transactions.
Akerlof spoke about his current work in economics, covering what he sees as the "missing motivation" in the traditional form of economics. He was quick to give half the credit for his lecture and knowledge of the subject matter to his research partner, Rachel Kranton, with whom he has worked for over ten years. They are in the process of writing a book about identity and economics together.
Akerlof began by reviewing what he called "traditional," or standard economics, explaining the supply and demand curves and how firms seek to maximize profits and individuals seek to maximize utility. The "missing motivation" in this type of economics is that "economists missed an important part of economics: people typically have opinions, and also have views about how they see and identify themselves," he said.
According to Akerlof, everyone has an ideal as to what sort of person they think they should be and their level happiness is dependent upon whether or not they meet that ideal.
For example, Akerlof stated that most teachers, like himself, have an ideal of what good teaching is.
"When I've taught a good class, I really feel quite good, and when I teach a bad class, I usually have a miserable rest of the day," he said.
Akerlof elaborated on this hidden motivation, saying that Secretary of Defense Donald Rumsfeld and his team of economists could have kept themselves out of the current mess in Iraq had they considered the role of identity in economics.
"Invading Iraq was in part an economic decision, and if they'd considered the Iraqi's identity - that they hated the United States - they might have reconsidered their decisions," Akerlof said.
His theory can also shed light on the economics of gender in the workplace, the economics of the household, the economics of impoverished minorities, and the economics of education, he said. It would not necessarily change what occurs now in all these areas of economics, but would seek to explain how identity can sometimes function to preclude best economic benefit in these cases.
The forum following Akerlof's lecture was led by, in the words of Bacow, two "blessed" discussants: Professor Ellen Pinderhughes from the Department of Child Development at Tufts and Professor Glenn Loury, a guest from the Department of Social Sciences at Brown University. Around fifty students and teachers remained in Barnum for the forum.
Pinderhughes found Akerlof's theory problematic insofar as "people can have multiple identities, or identities that become more important or more or less positive over time," she said. It would therefore be hard to constantly quantify and regulate these identities.
Loury brought up similar criticisms, saying that Akerlof's ideas were "blackboxing too much about identity into economic theory."
Most of the students who attended were prospective or current economics majors. Kaipin Shan, who is working to obtain her Masters of Economics at Tufts, said that the lecture was "great because I've studied economics for a while and he really introduced what I feel is a missing motivation."
"I still have lots of questions, though, his theory is so brand-new," she said.
