Economics: Tribal rationality

MARK THOMA directs us to an interesting piece on "identity economics" by George Akerlof and Rachel Kranton, who write:

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.To grasp the relevance of identity economics, and how it differs from standard economics, consider an otherwise puzzling fact. Men and women in the United States smoked cigarettes at vastly different rates at the beginning of the twentieth century, but these rates largely converged by the 1980’s. Women now smoke just as much as men.We cannot explain this convergence in terms of standard economic arguments, such as changes in relative prices and incomes, because no such changes were sufficiently large. But we can explain it if we ask how people think about themselves – that is, if we examine changes in gender norms. Women early in the twentieth century were not supposed to smoke; it was inappropriate behavior. By the 1970’s, however, advertising campaigns targeted “liberated” women, telling them that smoking was not only acceptable, but desirable.

I've found the idea of tribalism to be increasingly useful in understanding political behaviour. Faced with the need to make a decision based on incomplete information, people may often attempt to understand how others like them are behaving and behave in that fashion. This isn't really a new insight; politicians have been playing to group identities forever. But it certainly seems that economists have been slow to incorporate it into their models of consumer behaviour. As in: I buy this phone because those I recognise as being like me buy this phone, I borrow against my home in this way because others like me do too, I develop expectations about the proper level of educational attainment because those like me have similar expectations, and so on.

Economists are sure to be uncomfortable with this kind of behaviour because it's much more difficult to model than simple rationality. But if they hope to contribute to the policymaking process, economists need to work harder to understand when a simple price incentive will work appropriately, and when identity filters mean that price changes will generate unexpected results.

Native American Tribes and Economic Development

In the Native American world, where life is viewed as interconnected, every decision has physical, economic, social, and spiritual consequences, and all these impacts must be carefully considered.

Unlike corporate newcomers such as high-tech industries, American Indian tribes are underrepresented on the national political and economic scene and have very limited participation in the major financial markets, including Wall Street.

Tribes are investing on and off their Native lands in ventures such as hotels, golf courses, manufacturing, entertainment venues, solar and wind technology, tourism and the hospitality industry, health care, and gambling enterprises, all of which have begun to generate significant revenues, particularly compared with tribes’ past economic conditions and the lack of resources, infrastructure, market, and economic opportunity.

In the past few decades, some of the 500-plus tribes in North America have made strides to diversify their economies and improve the quality of life for their people, but challenges remain. Even in their government role—tribes are legally sovereign nations—they have not always been afforded the same or similar authority and rights as state, county, or other municipal governments. In the absence of a tax base, market, and infrastructure, tribes have had to become more entrepreneurial in creating sustainable economies to support their governments and provide basic services to their people,

Although some of the most successful Native American enterprises qualify as Fortune 500 companies, tribes are virtually invisible politically and economically. Few people know the extent of tribal lands. They are scattered throughout the United States, with tribes, nations, communities, and bands holding over 50 million acres (20 million ha), or about 2 percent of U.S. land. These lands are mostly concentrated in rural areas, away from population centers. In the western United States, nearly all tribal land was once remote, but as the populations of cities grew, some tribes found themselves surrounded by urban sprawl.

Tribal Land

The concept of tribal land is a modern one. Since before the arrival of the Spanish explorers, Native American people hunted, farmed, and traded over all of what is now the United States, as well as the rest of North and South America. Believing he had sailed to India, Columbus called the indigenous people “Indians,” setting the course for the misunderstanding that tribal communities continue to face today. As explorers began to arrive in North America, European countries competed for political and military alliances with North American tribes through nation-to-nation treaties that are the basis of U.S. Indian law today.

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