Narrative Economics

In this highly readable introduction to narrative economics, Nobel Prize winner Robert Shiller sheds historical and contemporary light on the power of stories to shape economic events, especially when they become contagious or viral in a similar way to epidemics. John Kenneth Galbraith famously said about forecasters that there are two kinds: those who don't know and those who don't know they don't know. The author argues for a role for narratives in anticipating economic events, and explains historically how Keynes was right in his analysis of how the Versailles Treaty would be interpreted in the light of economic conditions. Beginning with a chapter on bitcoin narratives then moving onto a more comparative analysis, he explains the dynamics of why some stories do go viral, also bringing in the craze of Rubik's cube - in my own childhood it was yoyos, with earlier and later adapters as they became more popular.

The second part explains the foundations of narrative economics whereby new contagious narratives can cause economic events and economic events bring about changed narratives. The author then sets out seven propositions about their nature, including that their economic impact can change through time, that truth is not enough to stop false narratives and that they thrive on human interest, identity and patriotism. This leads into a more extensive section with nine perennial economic narratives explaining their historical and contemporary significance. These include panic versus confidence, frugality versus conspicuous consumption, laboursaving machines and jobs (also automation and AI), then real estate booms and busts and corresponding stock market bubbles leading to crashes; the last two narratives have moral implications and deal with boycotts and profiteering and the wage-price spiral. Readers can readily identify with the examples given in this book and will gain a much better understanding of the role of stories, especially in view of the speed of modern contagions.