Changing Identity: The Emergence of Social Groups1

The original Homo Economicus has progressed from an atomistic and self-interested individual to a socially embedded agent in modern economics. In particular, social interaction models suggest that the individual’s own utility of undertaking an action may be influenced by the number of peers taking this same action. Hence, people gain by conforming to, or differentiating their behaviour from that of others. A number of papers have also suggested why people want to conform. In particular, Akerlof and Kranton (2000, 2002, 2005) suggest that people belong to certain groups and wish to adopt the corresponding social identity by behaving according to the behavioural prescriptions of these groups. In this paper, we present a social interaction model that is based on a different account of identity. The concept of identity used here is on a more personal level and suggests that people have desired self-images of themselves that they wish to attain at some time in the future. Hence, individuals aim to transform their current individual characteristics into those of their self-image. They try to achieve this by joining social groups and adopting the typical characteristics of these groups. However, groups will be modified over time by the people joining them. This may induce individuals to revise their previous choices and eventually to move on and to choose different groups. The model thus presents an endogeneous interaction structure and offers an account of endogenous group formation as well as an endogenous evolution of personal identity. We further study in what sense and under what conditions the dynamics at the individual and at the social level will reach an “equilibrium” and what the nature of such an equilibrium is.