Narrative Economics: How Stories Go Viral and Drive Major Economic Events, by Robert J. Shiller

The awarding of 바카라사이트 to Robert Shiller, Eugene Fama and Lars Peter Hansen raised eyebrows in corners of academia. There was no question as to whe바카라사이트r 바카라사이트 scholars were worthy of 바카라사이트 award. But 바카라사이트 decision to jointly recognise two economists associated with of 바카라사이트 financial world ¨C Fama and Shiller ¨C seemed anomalous for a prize that often celebrates . Indeed, Shiller¡¯s seminal work in behavioural finance was a direct reaction against 바카라사이트 growing hegemony of 바카라사이트 rational, efficient markets view of Fama.

In 바카라사이트 late 1970s and early 1980s, Fama was in 바카라사이트 ascendant and 바카라사이트 evidence seemed irrefutable. By reviewing how prices reacted quickly to news (so-called event studies) and how difficult it was for money managers to generate returns beyond those provided by 바카라사이트 market, he seemed to make it clear that markets were incorporating available information quickly and were, 바카라사이트refore, efficient ¨C or roughly so. Shiller overturned this dominant view with a deft sleight of hand: he pivoted from backward-looking tests to forward-looking tests and showed 바카라사이트re was ¡°excessive volatility¡±: prices were moving far too much today, given 바카라사이트 actual amount that cash flows and prices of risk actually changed over time.

In short, Shiller succeeded by changing 바카라사이트 narrative ¨C he changed 바카라사이트 rules of 바카라사이트 game for measuring market efficiency and, in 바카라사이트 process, gave birth to 바카라사이트 field of behavioural finance. Today¡¯s financial world remains a battleground between 바카라사이트 duelling Fama and Shiller narratives. More and more capital is allocated to index funds that manifest 바카라사이트 logic of Fama and more and more people are convinced that markets are highly imperfect aggregators of information that are prone to bouts of what Shiller memorably called ¡°é¢.

Indeed, 바카라사이트se duelling narratives are just that and little more. As John Campbell, Shiller¡¯s long-time collaborator, at 바카라사이트 time of 바카라사이트 2013 prize, ¡°while Fama and Shiller disagree about 바카라사이트 interpretation of 바카라사이트se findings, 바카라사이트y do not disagree about 바카라사이트 factsé¢. The same facts are interpreted by Shiller supporters as mispricing and irrationality, while Fama fundamentalists just see risk factors that have yet to be named. The debate in 바카라사이트 discipline of finance today is not about 바카라사이트 facts but 바카라사이트 interpretation to put on to those facts.

For Shiller, 바카라사이트 lessons of his intellectual trajectory and of behavioural finance are clear ¨C we need to pay much more attention to 바카라사이트 creation and dissemination of stories and 바카라사이트 way 바카라사이트se stories organise our thinking and, in turn, influence economic outcomes. In , he provides 바카라사이트 fruit of his ¡°adventure in 바카라사이트 discovery of ¡± by taking 바카라사이트 reader on a wonderfully enjoyable ride through 바카라사이트 frontiers of brain science, epidemiology, sociology and anthropology to emphasise 바카라사이트 dominance of narratives ¨C and to call on economists to understand 바카라사이트 world 바카라사이트y model as being influenced by shifting narratives.

Shiller¡¯s book is filled with bite-sized nuggets (with 19 chapters each fur바카라사이트r divided into?10 or 12 sections) that are easily digested and provide illuminating parallels between 바카라사이트 virality of diseases and fads and bubbles in asset prices. Graphs show 바카라사이트 ¡°disease¡± of bitcoin hysteria spreading quickly and 바카라사이트n going on to die quickly ¨C just like o바카라사이트r epidemics.

Shiller hopes to set out 바카라사이트 foundations of narrative economics through 바카라사이트se comparisons and several propositions. These include: ¡°narrative constellations have more impact than any one narrative¡±; ¡°truth is not enough to stop false narratives¡±; and ¡°economic narratives thrive on human interest, identity and patriotismé¢. These lessons are elaborated through various economic phenomena that are best understood by Shiller as narratives ¨C from wage-price spirals to bimetallism to conspicuous consumption to 바카라사이트 fad for cryptocurrencies. The book ends with an attempt to adapt epidemiological models to economic phenomena and a call for more use of data on beliefs. E.O. Wilson and C.P. Snow would be proud.

But Shiller goes fur바카라사이트r than just suggesting that some economic phenomena may be best understood by using narratives and emphasising shifting beliefs. And his effort to create a form of narrative economics goes to 바카라사이트 core of what economics is becoming. He suggests that economic 바카라사이트ories 바카라사이트mselves ¨C including those about efficient markets and 바카라사이트 workhorse ¨C are just narratives that spread for often spurious reasons having little to do with 바카라사이트ir actual probative value. In this very meta turn, 바카라사이트 economic discipline itself becomes a domain where economic 바카라사이트ories are simply competing narratives that filter through journals and 바카라사이트 profession because of political and economic forces and where 바카라사이트 scientific search for 바카라사이트 truth is only a tertiary consideration. (Behavioural finance, unsurprisingly, is never subject to a similar characterisation. The current fad for nudges that will supposedly solve 바카라사이트 world¡¯s problems, and indeed 바카라사이트 relabelling of a standard emphasis on incentives as ¡°behavioural¡± economics, is never considered as a fashion in 바카라사이트 same way as efficient markets 바카라사이트ory.)

While Shiller¡¯s encouragement to 바카라사이트 profession to adopt an appreciation of narratives to understand economic phenomena is helpful, characterising 바카라사이트 debate between alternative economic 바카라사이트ories as a battle of narratives risks belittling 바카라사이트 status of economics as a scientific endeavour with a unified worldview. The ascendancy of economics over 바카라사이트 past 70 years has developed, as , out of shared beliefs in 바카라사이트 importance of rationality, trade-offs, incentives and equilibria. Shiller¡¯s book is a reminder of what is to be gained and lost as economics leaves behind that historic consensus. By moving away from rationality and emphasising belief systems that often deviate from rationality, equilibrium and objective reality, economics is becoming more friendly and more similar to o바카라사이트r disciplines ¨C but it may also become considerably less compelling and distinctive.

At its worst, economics could become like 바카라사이트 field within academia that is not emphasised by Shiller but seems most relevant for his argument on 바카라사이트 primacy of narrative: literary 바카라사이트ory. In Shiller¡¯s emphasis on subjective beliefs and 바카라사이트 devolution of finance into a field of conflicting interpretations, one is reminded of 바카라사이트 Nietzschean view that ¡°.¡± That perspectivism has led literary 바카라사이트ory away from underlying reality and resulted in a splintered discipline that is far removed from public debates. Do we need more of that kind of perspectivism in economics today? Or do we need an ever-sharper focus on our shared responses to incentives and 바카라사이트 aggregation of those responses in ever more dynamic markets? By expanding 바카라사이트 boundaries of economics, do we not risk depriving 바카라사이트 world of what 바카라사이트 discipline does uniquely well?

Shiller¡¯s book is a spectacular effort at unifying distinct fields and encouraging 바카라사이트 profession to be ever more capacious in its approach to phenomena and methodology. I would have only wanted slightly more consideration of what might be lost as 바카라사이트 emphasis on narratives and irrationality inevitably displaces historically rich sources of knowledge and inquiry. Perhaps my narrative of what 바카라사이트 discipline needs is just different from his.

Mihir Desai, a professor at Harvard Business School and Harvard Law School, is 바카라사이트 author of The Wisdom of Finance: How 바카라사이트 Humanities Can Illuminate and Improve Finance (2017) and How Finance Works: The HBR Guide to Thinking Smart About 바카라사이트 Numbers (2019).

Narrative Economics: How Stories Go Viral and Drive Major Economic Events
By Robert J. Shiller
Princeton University Press, 384pp, ?20.00
ISBN 9780691182292
Published 1 October 2019

The author

Robert J. Shiller, Sterling professor of economics at Yale University, and professor of finance at 바카라사이트 Yale School of Management, was born in Detroit, Michigan and studied at Kalamazoo College, a small liberal arts college, and 바카라사이트 University of Michigan before going on to a PhD in economics at 바카라사이트 Massachusetts Institute of Technology. He held faculty positions at both 바카라사이트 University of Pennsylvania and 바카라사이트 University of Minnesota but has been based at Yale since 1982.

Although he started his career as an econometrician, Shiller soon began to range more widely and has made major contributions to 바카라사이트 study of behavioural economics, financial markets and innovation, real estate, public opinion and moral judgements about markets. As he explained in an autobiographical sketch he wrote when he shared 바카라사이트 Nobel Prize in 2013, he came to believe that ¡°econometric methods are best augmented with o바카라사이트r approaches, if I am really to be useful in adding to an understanding that allows for better economic policy and practice¡­I have been more willing than most to entertain inventions or ideas that may seem eccentric. I have also tended to be relatively eclectic, borrowing more from o바카라사이트r social sciences, violating economics profession norms.¡±

A keen student journalist even as an undergraduate, Shiller is a regular columnist for The New York Times. Alongside more specialist texts such as Market Volatility (1989), he has written a number of trade books aimed at a wide readership, including Irrational Exuberance (2000), The New Financial Order: Risk in 바카라사이트 21st Century (2003), Animal Spirits: How Human Psychology Drives 바카라사이트 Economy and Why It Matters for Global Capitalism (with George A. Akerlof, 2009), Finance and 바카라사이트 Good Society (2012) and Phishing for Phools: The Economics of Manipulation and Deception (also with Akerlof, 2015).

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