by Robert J. Shiller is the scientific examination of storytelling on a grand scale and the interactions into the economy. For me personally, not an innovative, but undoubtedly interesting way to explore economic changes and especially bubble formation and crises. Unlike the majority of academics, the Nobel Laureate in Economics thus does not rely only on the numbers, dates and facts. Rather, he tries to add an emotional note to the purely statistical approach. Because he sees the cause in many at first sight perhaps not explainable phenomena in popular stories. In other words, storytelling that drives individual and collective economic life. A "narrative economy," as he calls it.
According to Shiller, narratives can be used to better predict financial bubbles and other economic events. In his book, he also cites a number of examples where this has already happened in the past, but was not necessarily regarded as such. In over 400 surprisingly easy-to-read pages, he makes it clear that we must begin to take the effect of narratives seriously and addresses his appeal in particular to his research colleagues.
To me, his approach is a blend of the thinking of Gustave Le Bon and the science of a Daniel Kahneman with a much stronger focus on economic contexts - especially macro-economics.
His drive was based on quite bizarre outgrowths such as companies that are too big to fail or cryptocurrencies such as Bitcoin. For him, it is always the stories behind them that have a massive impact on people's behavior and thus on the economy. In his book, he now addresses the questions of how such narratives are created in the first place. But also who puts them into the world and what intentions lie behind them. Furthermore, how they finally go viral and what effects they have. Of course, questions regarding the usability for forecasts must not be missed.
"We need to incorporate contagion through narrative into economic theory. Otherwise we remain blind to a very real, very tangible mechanism of economic change, as well as a crucial element of economic forecasting. If we don't understand the epidemics of popular narratives, we have an incomplete grasp of how the economy and economic behavior change."
Robert J. Shiller
And in his publication, he shows how helpful it can be to understand the nature of epidemics and their relationship to infectious factors when it comes to predicting something better than purely statistical methods can.
His answers are coherent and interesting, if not surprising to all the people who have already read a Gustave Le Bon or Nate Silver. Nevertheless, he once again puts his finger in the wound that statistics do not reveal everything, especially the power of narratives.
According to Robert Shiller, the concept of the narrative economy comprises two elements:
Word of mouth, which provides a contagion of ideas in the form of stories, and ...
people's efforts to invent new contagious stories or make others more contagious.
His focus is on finding out how narrative contagion affects economic events.
The word narrative is often used synonymously with the word story. For Robert J. Shiller, however, it conveys a somewhat modern meaning. Namely, "a story or representation used to explain or justify a society, era, et cetera." He goes on to say that "stories are not limited to simple renditions of events that happen to humanity. A story can also be a song, a joke, a theory, an explanation, or a plan that resonates emotionally and can be easily reproduced in ordinary conversation. We can think of story as a sequence of rare, major events when a story goes viral, often (but not always) with the help of an attractive celebrity (sometimes just a celeb or fictional character) whose inclusion in the narrative adds an aspect of 'human interest' to the whole."
This book demonstrates how popular stories change over time to influence economic outcomes, which include not only recessions and economic crises, but also other important economic phenomena. Narratives have a contagious element to them, which makes them difficult to predict in many cases. Nevertheless, this is where the support of epidemiology comes in handy.
"Ultimately, narratives are important vectors of rapid change in culture, zeitgeist and economic behavior. Sometimes narratives combine with fads and hypes. Clever marketing experts and promoters then hide them in an attempt to profit from them."
Robert J. Shiller
Robert Shiller is absolutely right when he claims that traditional economic approaches fail to examine the role of public belief in the light of important economic events. It is just that, on the face of it, being able to do so is also a freestyle exercise. Undoubtedly, however, these approaches can only benefit from including narratives in their explanations.
"This book is the capstone of a train of thought that I have been developing for much of my life. It is based on work that I and my colleagues, especially George Akerlof, have done over decades. This book makes a broad attempt to combine the ideas in all that work and link them to epidemiology and to support the idea that thought viruses are responsible for many of the changes we see in economic activity. The 'story' of our time and our personal lives is constantly changing and so is how we behave."
Robert J. Shiller
The book is divided into four parts:
The first part introduces the basic concepts that benefit from research in fields as diverse as medicine and history, offering two examples of narratives that will be familiar to many readers.
The Bitcoin Narrative.
The Laffer Curve Narrative.
The second part offers a list of suggestions to guide our thinking about economic narratives in the right directions and to prevent mistakes in such thinking. For example, Robert Shiller argues that many people do not realize that long-standing narratives can undergo a process of mutation that reinvigorates once-influential stories and makes them stronger again.
Part Three examines nine timeless narratives that have demonstrated their ability to influence important economic decisions.
The fourth part ventures into the future and presents some thoughts on where narratives are taking us at this point in history and what future research might improve our understanding of these narratives.
The book then concludes with an appendix that relates the analysis of the narratives to the medical theory of the epidemic of disease.
You can already guess from the structure for whom this book might be particularly suitable and for whom not. The structure is quite scientific and although the language is easy to understand and, compared to the publications of Daniel Kahneman, also simple, the author is aimed more at experienced readers. However, those who are not afraid of more than 400 pages of economic theory and who like to deal with economic contexts and especially the interlocking of theory and the supposed unpredictability of humans will certainly not be disappointed here.
For me, a very interesting, albeit rather advanced economics book.