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Social identity is a theory formed by Henri Tajfel and John Turner[1] to understand the psychological basis of intergroup discrimination. It is composed of four elements:
As developed by Tajfel, social identity theory is a diffuse but interrelated group of social psychological theories concerned with when and why individuals identify with, and behave as part of, social groups, adopting shared attitudes to outsiders. It is also concerned with what difference it makes when encounters between individuals are perceived as encounters between group members. Social identity theory is thus concerned both with the psychological and sociological aspects of group behaviour.
Reacting against individualistic explanations of group behaviour (e.g. Floyd Allport) on one hand, and tendencies to reify the group on the other, Tajfel sought an account of group identity that held together both society and individual. Tajfel first sought to differentiate between those elements of self-identity derived from individual personality traits and interpersonal relationships (personal identity) and those elements derived from belonging to a particular group (social identity). Each individual is seen to have a repertoire of identities open to them (social and personal), each identity informing the individual of who he is and what this identity entails. Which of these many identities is most salient for an individual at any time will vary according to the social context. Tajfel then postulated that social behaviour exists on a spectrum from the purely interpersonal to the purely intergroup. Where personal identity is salient, the individual will relate to others in an interpersonal manner, dependent on their character traits and any personal relationship existing between the individuals. However, under certain conditions "social identity is more salient then personal identity in self-conception and that when this is the case behaviour is qualitatively different: it is group behaviour."
"Social identities... are associated with normative rights, obligations and sanctions which, within specific collectivities, form roles. The use of standardized markers, especially to do with the bodily attributes of age and gender, is fundamental in all societies, notwithstanding large cross-cultural variations which can be noted." by Giddens
In the sphere of economics, two separate papers by Akerlof and Kranton[3][4] incorporate social identity factor to principal-agent model. The main conclusion is that when the agents consider themselves insiders, they will maximizes their identity utility by exerting the high effort level comparing with the prescription behavior. On the other hand, if they consider themselves outsiders, they will require a higher wage to compensate their lose for behavior difference with prescription behaviors. Chen and Li[5] test the social identity effect in the lab using strategic method and find that when people are matched with ingroup members, they will be more likely to have “charity” concern[6] and less likely to have “envy” concern. Another experiment conducted by Oxoby[7] has the same results with Chen and Li in the aspect of positive reciprocity, but in the negative reciprocity, evidences from Oxoby show that people will be more likely to take revenge when they get negative reciprocity from in-group members in sequential games, which leaves it as an open question in both experimental economics and social identity theory.