Narrative Economics By Robert Shiller

RATING

2 stars

N/A = good but not on the scale

1 star = perspective supplementing

2 stars = perspective influencing

3 stars = perspective altering

SHORT SUMMARY (272 words or less)

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When you ask people to tell you their life philosophy, they struggle to find the words. But if you want to hear their values, ask for their stories. This is the cultural, psychological, and historical power of narratives. Robert Shiller extends this power to behavioral economics. As an aside, Shiller won a Nobel Prize in economics and he’s named in the Case-Shiller home price index. This book is important especially today, quarantined during the COVID pandemic and staring down a potentially deep and dark recession ahead. The language of the book – epidemics, viruses, contagion, infection rates – is eerily prescient.

The thesis: economic fluctuations are driven by oversimplified and easily transmitted economic narratives — stories with high contagion rates. Such narratives are typically ignored by classical economics, but have profound impacts on economic cycles. Narratives are not necessarily rooted in factual beliefs, but are more often rooted in perception — how people perceive expert observers of a narrative to react, how narratives are valued in a cultural context, and the perception of certain narratives relative to others stronger narratives.

But what does this practically mean? Well, potentially a lot. Are brands popular because of their products or because of their adjacency to other contagious narratives? Does the stock market move on the Keynesian explanation of traders predicting what the experts think? Do economic recessions end when there’s no more social capital in acting frugal? The behavioral context analysis of these examples and others will reshape my understanding of economic events. The big question today: how does this framework apply to COVID’s economic impact?

Oh, I also learned a lot about the Gold Standard.

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