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Narrative Economics

How Stories Go Viral and Drive Major Economic Events

By Robert J. Shiller
15-minute read
Audio available
Narrative Economics by Robert J. Shiller

Narrative Economics (2019) describes how popular narratives influence the way economies behave. From Bitcoin’s sudden rise to stock-market crashes, Narrative Economics looks beyond the statistics to the collective human stories that drive these events. 

  • Financial analysts looking to broaden their horizons
  • Forecasters of any kind
  • Anyone interested in the economy and global events

Robert J. Shiller is a Nobel Prize-winning economist and the author of the New York Times best-seller Irrational Exuberance, among many other titles. He is Sterling Professor of Economics at Yale University and a frequent contributor to the New York Times.

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Narrative Economics

How Stories Go Viral and Drive Major Economic Events

By Robert J. Shiller
  • Read in 15 minutes
  • Audio & text available
  • Contains 9 key ideas
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Narrative Economics by Robert J. Shiller
Synopsis

Narrative Economics (2019) describes how popular narratives influence the way economies behave. From Bitcoin’s sudden rise to stock-market crashes, Narrative Economics looks beyond the statistics to the collective human stories that drive these events. 

Key idea 1 of 9

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.

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