Group identity has emerged as a key explanatory variable of social exclusion or economic inequality because people prefer to benefit others who are similar to them (in-group favoritism) over those belonging to a di↵erent social group. If group iden- tification were fixed, individuals belonging to disadvantaged groups would be unable to escape them. However, constructivist research has shown that identities are con- structed and can change as the product of human decision making. In this paper I study the extent to which the choice over their group identity can help individuals break free from inecient dynamics. Particularly, I look at group identity choices in a social network setting where interactions with others (both in-group and out-groups) are strategically interdependent. I provide a theoretical model and characterize equi- librium outcomes when group identities can be changed. I also test the role of group identity in di↵erent settings through laboratory experiments.