Document Type

Working Paper

Publication Date

5-2026

Abstract

Behavioral Macroeconomics draws on cognitive psychology’s errors and biases approach to argue that psychological factors acting on individual choice affect how the economy functions. Keynes drew on psychology in his ‘beauty contest’ account of convention to explain individual investor expectations in terms of the average expectation of all investors. This assumes individual investors identify with the group of all investors, anticipating social psychology social identity analysis. Kaleckian Post-Keynesian Economics focuses on distributional conflict between capital and labor. This also assumes individual capitalists and laborers identify with groups of capitalists and laborers. Stratification Economics makes social group identity the basis on which economies operate as systems of intergroup inequalities. This raises two related questions: what role do economic agents’ perceptions of their social identities have in explaining economies, and what does this imply for the Keynesian understanding of the income determination process and economic policy recommendation? This chapter discusses how social identity is understood in Stratification Economics to answer these questions.

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