Narrative Economics by Robert J. Shiller

Summary and takeaways from the book.

The book is about "How Stories Go Viral and Drive Major Economic Events".

"Narrative economics demonstrates how popular stories change through time to affect economic outcomes, including not only recessions and depressions, but also other important economic phenomena."

ISBN: 978-0691182292
Published: October 1, 2019
Pages: 400
Available on: amazon

The author Robert Shiller is Prof. of Economics at Yale University, and winner of Nobel Prize in Economics in 2013 "for their empirical analysis of asset prices".

The book is about "How Stories Go Viral and Drive Major Economic Events".

"a narrative is “a way of presenting or understanding a situation or series of events that reflects and promotes a particular point of view or set of values.”

So a narrative is a particular form of a story, or of stories, suggesting the important elements and their significance to the receiver.

"Narrative economics demonstrates how popular stories change through time to affect economic outcomes, including not only recessions and depressions, but also other important economic phenomena."

"An economic narrative is a contagious story that has the potential to change how people make economic decisions".

Examples of narratives/stories: "The idea that house prices can only go up attaches to the stories of rich house flippers seen on television. The idea that gold is the safest investment attaches to stories of war and depression."

"Ultimately, narratives are major vectors of rapid change in culture, in zeitgeist, and in economic behavior. Sometimes, narratives merge with fads and crazes. Savvy marketers and promoters then amplify them in an attempt to profit from them."

"traditional economic approaches fail to examine the role of public beliefs in major economic events—that is, narrative."

Some examples of viral narratives discussed in the book are:

maximize shareholder value
supply-side economics
stimulate the economy
irrational exuberance
Rubiks cube
Lafers curve

Bitcoin Narrative Economics

"Bitcoin and Anarchism": how bitcoin rode on people's disillusion with governments and romantic desire for anarchy.

"The Bitcoin story is especially resonant because it provides a counternarrative to the older antianarchist narratives depicting anarchists as bomb-throwing lunatics whose vision for society can lead only to chaos and violence."

"Bitcoin is a contagious counternarrative because it exemplifies the impressive inventions that a free, anarchist society would eventually develop."

"among the many examples of viral economic narratives, Bitcoin stands supreme. It is a narrative that is well crafted for contagion, effectively capturing the anarchist spirit; and, of course, that is why most of us have heard of it. It is part bubble story, part mystery story. It allows nonexperts and everyday people to participate in the narrative, allowing them to feel involved with and even build their identity around Bitcoin. Equally appealing, the narrative generates stories of untold riches."

"Bitcoin has its celebrity hero, Satoshi Nakamoto, who is a central human-interest story for Bitcoin".

It has aura of mystery as Satoshi Nakamoto is a fictional character.
Bitcoin has it all as an economic narrative.

Promise of untold riches, success accessible to all, freedom, adventure, romance, idealism of economic equality, mystery, and an elusive human hero.

What makes a narrative go viral

"Popular narratives often have an underlying “us versus them” theme."

Visual image or model helps. "psychology and marketing journals have found that, at least in some circumstances, bizarre mental images do serve as memory aids."

Author gives an example how visuals help narratives stick in people's minds: "As you drop your keys into the flowerpot, form a mental image of the two vital entities—the keys and the place where you’re putting them."

Use of Humor: "Reagan then told his current favorite, about a Russian who wants to buy a car. A Matter of Delivery.

The man goes to the official agency, puts down his money and is told that he can take delivery of his automobile in exactly 10 years.

‘“Morning or afternoon?” the purchaser asks. “Ten years from now, what difference does it make?” replies the clerk. “Well,” says the car-buyer, “the plumber’s coming in the morning.”

Topics/plots/keywords: "According to Ronald B. Tobias (1999), in all of fiction there are only twenty master plots: “quest, adventure, pursuit, rescue, escape, revenge, the riddle, rivalry, underdog, temptation, metamorphosis, transformation, maturation, love, forbidden love, sacrifice, discovery, wretched excess, ascension, and descension.”

Christopher Booker (2004) argues that there are only seven basic plots: “overcoming the monster, rags to riches, the quest, voyage and return, comedy, tragedy, and rebirth.”

Use of analogy and metaphors in narratives makes us more receptive to abstract ideas: "Neuroscientist Oshin Vartanian (2012) notes that analogy and metaphor “reliably activate” consistent brain regions in MRI images of the human brain. That is, the human brain seems wired to respond to stories that lead to thinking in analogies."

Frequency and repetition: "Contagion depends on the frequency of opportunities to slip a narrative into a conversation." The more it is repeated in a wider spectrum, the more it is believed".

Stories: "The narratives become economic narratives when they involve stories in which others take action and describe the actions they take, such as investing in and getting rich in certain financial markets."

People want to see other people's stories: "evidence that viewers of television news retain little of the news they hear, presented an actual TV news report on the dangers of air pollution to a control group. They also presented a variation of the report to the experimental group in the form of a story with a protagonist, a baker with health problems caused by air pollution, in an unfair struggle against antagonists who benefited from the polluting activities. The experimental presentation of the news was retained better."

"narrative messages were more effective than statistical messages."

Narratives going Viral: Contagion, Constellations, and Confluence

"It is difficult to state accurately or to quantify the reason a few economic narratives go viral while most fail to do so... a network of human minds sometimes acts almost like a random number generator in selecting which narratives go viral."

"narrative epidemics really mimic disease epidemics."

"contagion from one news outlet and talk show to another, as they watch and read one another’s stories. "

"a confluence of narratives that may help drive economic events."

"a dozen precipitating factors, or narratives, that happened to occur together around 2000 to create the most elevated stock market in the United States ever, soon to be followed by a crash. The list, in brief, comprised the World Wide Web, the triumph of capitalism, business success stories, Republican dominance, baby boomers retiring, business media expansion, optimistic analysts, new retirement plans, mutual funds, decline of inflation, expanding volume of trade, and rising culture of gambling. "

Fake news

Narratives have good and bad side: "some distorted narratives have an economic impact for generations".

"Fake news often makes an impression on people because the brain processes that implement reality monitoring are imperfect."

"Fake performances, fake stories, and fake heroes are ubiquitous. The fakery is so creative that we cannot view the performances as caused by fundamental economic forces. Instead, the opposite is true: the fakery, in the form of fake narratives, affects economic outcomes."

"Truth Is Not Enough to Stop False Narratives".

"proof did not spread as fast as the illusion did."

The author gives example of Japan's "lost decade" and "Cult of the Offensive" before WW1 as examples of fake narratives with major impact on peoples lives.

The Fake news and narrative must be called out even if just for the record. But it might be impossible to neutralize fake news and fake narratives.

"another twist to that conclusion: a new story correcting a false story may not be as contagious as the false story, which means that the false narrative may have a major impact on economic activity long after it is corrected."

Predicting success of narratives is near impossible

"predicting the success of motion pictures before their release is widely known to be all but impossible".

"Jack Valenti, former president of the Motion Picture Association of America, said:

With all the experience, with all the creative instincts of the wisest people in our business, no one, absolutely no one can tell you what a movie is going to do in the marketplace... Not until the film opens in a darkened theater and sparks fly up between the screen and the audience can you say this film is right.

"Screenwriter William Goldman had a similar thought, in the opening lines of his book: Nobody knows anything. Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess and, if you’re lucky, an educated one."

"In fact, many films and songs by one-hit wonders attest to the difficulty of going viral. The same person who’s had a hit often can’t do it again."

* * *

Narratives are "models of understanding" and "fulfill a “passion for meaning".

We know ingredients that make narratives go viral, but not all narratives go viral even with some or all of the ingredients.

Promise of untold riches, success accessible to all, freedom, adventure, romance, idealism of economic equality, mystery, and an elusive human hero.

Related articles

Cost of Lies
Empire of Illusion: The End of Literacy and the Triumph of Spectacle by Chris Hedges

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