Identity and Economics: Review of the Literature

Classical economic theory has evolved over the last fifty years in the way that economists have abandoned the exclusive consideration of the only two market structures (perfect competition and monopoly) and the assumptions that all participants from one market have the same information as the others. Today, the economists are addressing deviations from the perfect rationality of homo economicus, such as the preconception of the present moment, formation of the behavior and aversion to loss. Economists describe the motivation in that the individual has a "utility function", which is a numeric value attached to things important to the people.The economic theory of identity, formulated by George Akerlof and Rachel Kranton, follows the progressive tradition in economics. In this paper are highlighted the theoretical foundation of the economic pillars of identity (the economics of identity) and the main areas of human activity where the theory could be observed.