An Economic Analysis of Identity and Career Choice

Standard economic models which focus on pecuniary payoffs cannot explain
why there are highly able individuals who choose careers with low pecuniary re-
turns. Therefore, financial incentives are unlikely to be effective in influencing
career choices of these individuals. Based on Akerlof and Kranton (2000), we con-
sider a model of career choice and identity where individuals derive non-pecuniary
identity payoffs. Using factor analysis on a range of attitude questions, we find
two factors related to identity (career orientation and social orientation), which
are important for educational choices. The implication is that policymakers and
institutions of higher education need to focus on identity related issues rather than
just improved financial incentives if they aim at attracting the high ability youth.