Santa Fe Institute

A Theory of Collective Reputations with Endogenous Identity

by Glenn Loury
July 18, 2013
We explore a formal economic model of "collective reputations" — i.e., of the rational formation by external observers of beliefs about the unobserved traits of varied population aggregates. This phenomenon (sometimes referred to as 'stereotyping') has long been of interest to economists, sociologists, and social psychologists. We extend the economics literature by allowing observed agents to exert control over their perceived identities. Among the behaviors potentially illuminated by such a theory are:

(1) the use of racial profiling in law enforcement;
(2) the marketing problem of effectively "branding" a new consumer product;
(3) the conspicuous consumption of expensive goods by those with modest incomes;
(4) the selective 'out-migration' from a stigmatized group associated with "passing";
(5) the nearly universal anti-defamation activities of organized minority groups…


The model explores implications of the fact that the distribution of abilities within distinct identity groups becomes endogenous when individuals choose how they will be identified by external observers. We show that the logic of individuals' identity choices exacerbates group disparities by inducing a positive selection of 'more attractive' individuals into a group with a superior reputation, reinforcing incentive-feedback effects. The model implies that inequality deriving from the stereotyping of endogenously constructed social groups is at least as great as the inequality that can emerge when perceived identity is not malleable.

(This presentation reflects, in part, joint work I have undertaken with my former PhD student at Brown, Young-Chul Kim, now of Sangmyung University in Seoul, South Korea.)