What is the main message of Narrative Economics?

The main message of Narrative Economics is that stories and narratives have a powerful impact on economic behavior and can shape the course of economic events.

How long does it take to read Narrative Economics?

The reading time for Narrative Economics varies depending on the reader's speed, but it typically takes several hours. However, the Blinkist summary can be read in just 15 minutes.

Is Narrative Economics a good book? Is it worth reading?

Narrative Economics is a fascinating read that explores the influence of narratives on economic outcomes, making it a worthwhile book for anyone interested in understanding the interplay between stories and the economy.

Who is the author of Narrative Economics?

The author of Narrative Economics is Robert J. Shiller.

Narrative Economics Summary of Key Ideas and Review

Name: Narrative Economics
Rating: 4.3 (461 reviews)
Author: Robert J. Shiller

Introduction

What’s in it for me? Discover how narratives drive economic events.

Have you ever wondered why financial markets and economies sometimes behave in strange ways? Well, many economists will tell you that it’s all about numbers and statistics. The only way to understand the economy, therefore, is by interpreting these statistics.

But here’s the thing. The people who drive our economies – the consumers, the businesspeople, the politicians – are more complicated than any set of statistics can reveal. They have their own passions, biases, and belief systems. Simply put: they have their own stories – stories that change the way they behave, in turn impacting the way that money behaves.

When these stories become popular, they’re instrumental to economic outcomes – whether that’s by causing panic during a stock-market crash or leading rookie investors to load up on Bitcoin. However, stories are generally absent from economic analysis.

Narrative economics is a new way of taking these collective stories into account. In these blinks, we’ll take a closer look at this concept and learn how popular narratives drive economic events.

In these blinks, you’ll learn

what epidemics can teach us about viral stories;
why Bitcoiners think they’re special; and
how investors behaved differently during the two world wars.

Key idea 1 of 8

Narrative economics considers the collective stories that change economic behavior.

When you watch an economist on TV, you’ll notice that they’ll nearly always speak in figures. You’ll hear them use terms like “GDP” or “inflation” describing a past stock-market crash or an impending recession.

In an economist’s world, it can often seem as if the economy lives independently from the rest of the world, on a purely numerical plane. Economists rarely, if ever, try to explain the economy by referring to people’s fears, hopes, or prejudices. And they’ll often leave out our messy human stories, which are just as crucial to understanding big economic events. That’s where narrative economics come in.

The key message here is: Narrative economics considers the collective stories that change economic behavior.

First, to understand the phrase “narrative economics,” we need to consider the modern use of the word narrative.

Rather than simply referring to something with a beginning, middle, and end, a narrative can describe a collective story or belief shared by a group of people. Take the “shrewd businessman,” a popular narrative in the United States. In fact, Donald Trump capitalized on it to appeal to voters. Whether or not Trump is a shrewd businessman doesn’t matter – he successfully hitched himself to this narrative and played up his credentials as a tough, wily operator who’d get the best deal for the country.

And, of course, that particular narrative had a real effect. It helped Donald Trump get elected president.

Now, take the stock-market crash of 1929. In the years before the crash, there were lots of popular narratives flying around. There were stories of ordinary people gambling all of their savings on a particular stock and becoming enviably rich. Of course, this led more and more people to make bad investments, culminating in the big crash on October 24, 1929.

Narratives should form part of our understanding of any big economic event, but often, they don’t. While economists have rarely focused on stories, there has been one notable exception – Cambridge economist John Maynard Keynes. Rather than simply refer to figures, Keynes made a note of public feelings at play. In his book Economic Consequences of the Peace, he predicted that Germany would become deeply embittered by the heavy reparations they were required to pay after World War One. No purely quantitative analysis could’ve told us that.

Key idea 2 of 8

The rise of Bitcoin illustrates the power of narrative in economics.

In late 2008, someone calling themself Satoshi Nakamoto posted a link to a paper that they’d written called Bitcoin: A Peer-to-Peer Electronic Cash System. From that moment, excitement grew around this mysterious innovation. While Nakamoto’s true identity has never been revealed, their invention – the cryptocurrency Bitcoin – has become a phenomenon.

Bitcoin has a complex and impressive mathematical theory behind it. But rather than the precise technical achievement that underpins the cryptocurrency, it’s mystery and excitement that drives interest in it.

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Key idea 3 of 8

The study of epidemics can tell us a lot about economic narratives.

Think of all of the different departments at a university: anthropology, literature, physics, mathematics, economics, and so on. All of them highly specialized, all unearthing wonderful insights in their respective fields.

But this over-specialization can be an obstacle – a narrow focus. Instead, by working together, these different departments can enrich one another. And one area from which economics could learn a great deal is epidemiology – the study of epidemics.

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Key idea 4 of 8

Narratives often occur in constellations with other narratives.

Sometimes, a story only gains momentum when it connects with other stories that relate to it.

For instance, let’s say that your next-door neighbor is an anti-social grouch who puts spikes on their garden fence to deter cats. If a cat in your neighborhood suddenly went missing, the narrative that your neighbor hates cats would suddenly seem more important. You might begin to notice other relevant details about your neighbor that would feed into your overall impression of them as an essentially miserable person – regardless of what had happened to the cat. This is because narratives rarely happen alone: they’re often part of a wider net of related stories.

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Key idea 5 of 8

Economic narratives often hinge on particular, vivid details.

We can’t help it – we look to form narratives whenever we can. As the philosopher Jean-Paul Sartre wrote: “a man is always a teller of tales...he sees everything that happens to him through them.” In other words, our minds shape everything into narrative. But to form narratives, we need to hang them on particular human details.

Take the example of a controlled experiment conducted in 1985 by cognitive psychologists Brad E. Bell and Elizabeth F. Loftus. Participants took on the role of jury members. The goal was to see if particular, vivid details had any bearing on the way court cases were decided. So, fictional cases were presented with and without vivid details.

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Key idea 6 of 8

There are perennial economic narratives that occur again and again.

One very common economic narrative is that of panic versus confidence. You’ll often hear journalists, politicians, and economists talk about confidence – confidence in businesses, banks, and the broader economy. For economies to thrive, confidence in other people is essential.

Just as author Christopher Booker theorizes that stories follow one of seven basic plots – such as “rags to riches” or “overcoming the monster” – there appear to be economic narratives that crop up time and time again.

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Key idea 7 of 8

The economic impact of narratives may change through time.

We all have memories that subtly change over time. A distant birthday party. A summer road-trip with friends. A drunken holiday. These memories can reappear to us throughout our lives, subtly different, and cause us to reappraise them completely. So that dreadful time you sprained your wrist while bowling becomes a wonderful evening.

And as with life, so with economics. The collective narratives around economic events can change through time, altering our whole understanding of them.

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Key idea 8 of 8

Research into narratives can help us prepare for economic events in the future.

As we’ve learned, narratives are important when it comes to the economy. To help predict downturns, boom periods, and anomalies alike, it’s necessary that economists take them seriously. It’s simply not enough to use statistics.

So, economists and researchers should use tools available to them now to understand narrative better. We’re able to access unprecedented volumes of data and see what occupies the minds of people all over the world. We can trawl through internet searches, see what people are saying on social media, and learn from focus groups and other types of market research. Never before has so much in the way of opinion, feeling, and personal preference been recorded. Technology allows us to search books and newspapers for key words and phrases at the click of a button.

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