Identity and Economic Incentives

Kwabena Donkor (), Lorenz Goette (), Maximilian Müller, Eugen Dimant () and Michael Kurschilgen
Additional contact information
Kwabena Donkor: Stanford GSB
Lorenz Goette: National University of Singapore
Eugen Dimant: University of Pennsylvania

No 269, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: This paper examines how beliefs and preferences drive identity-conforming consumption or investments. We introduce a theory that explains how identity distorts individuals' beliefs about potential outcomes and imposes psychic costs on benefiting from identity-incongruent sources. We substantiate our theoretical foundation through two lab-in-field experiments on soccer betting in Kenya and the UK, where participants either had established affiliations with the teams involved or assumed a neutral stance. The results indicate that soccer fans have overoptimistic beliefs about match outcomes that align with their identity and bet significantly higher amounts on those than on outcomes of comparable games where they are neutral. After accounting for individuals' beliefs and risk preferences, our structural estimates reveal that participants undervalue gains from identity-incongruent assets by 9% to 27%. Our counterfactual simulations imply that identity-specific beliefs account for 30% to 44% of the investment differences between neutral observers and supporters, with the remainder being due to identity preferences.

Keywords: Identity; Experiment; Structural Analysis (search for similar items in EconPapers)
JEL-codes: D91 G41 Z10 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2023-12
New Economics Papers: this item is included in nep-exp, nep-sea, nep-spo and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_269_2023.pdf First version, 2023 (application/pdf)

Related works:
Working Paper: Identity and Economic Incentives (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:269

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