Although scholars often treat “ethnicity” as one of the most important phenomena in politics, nothing close to a consensus has emerged about not only what its effects are but also what it is. Theorists typically divide this debate into two camps, usually dubbed “primordialism” and “constructivism,” but these categories are unhelpful and actually obscure some of the most important questions. This study recasts the debate by providing a micro-level explanation for why and how people tend to think and act in terms of macro-level identity categories in the first place. Drawing heavily on recent psychological research, this approach reveals why ethnicity is special and why it is ascribed importance by researchers in fields as diverse as sociology, anthropology, and political science. As it turns out, neither constructivism nor primordialism is fully accurate, and theorists are advised to think in terms that are more consistent with psychological research.