Narrative Economics, Robert J. Shiller
"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."
"Russian literature scholar Gary Saul Morson recently collaborated with economist Morton Schapiro in Cents and Sensibility (2017), in which they argue that a better appreciation of great novels--which bring us close to the essence of human experience--would help improve the modeling of economic life."
"It is difficult to state accurately or to quantify the reason a few economic narratives go viral while most fail to do so. The answer lies in a human element that interacts with economic circumstances. Beyond some simple and predictable regularities, a network of human minds sometimes acts almost like a random number generator in selecting which narratives go viral. The apparent randomness in outcomes has to do with randomness in the mutation of stories to more contagious forms, and with moments of our individual lives and attentions, that can lead to a sudden climax of public attention to specific narratives. We routinely find ourselves puzzling years later over the reasons for the success of popular narratives in history and for their economic consequences."
"The lesson is that history, including economic history, is not the logically ordered sequence of events that is presented by subsequent narratives that try to make sense of it or try to achieve public consensus. Major things happen because of seemingly irrelevant mutations in narratives that have slightly higher contagion rates, slightly lower forgetting rates, or first-mover effects that give one set of competing narratives a head start."
"Ultimately, the story's rich visual imagery helped it evolve from an economic anecdote into a long-term memory. The visual detail of the napkin may have lowered the speed at which people forgot the narrative, which could have helped the epidemic penetrate a large fraction of the population. There is a lesson to be learned here for those who want their stories to go viral: when authors want their audience to remember a story, they should suggest striking visual images."
"Psychologists have noted that the human species is unique in the advanced development of its theory of mind--that is, humans' strong tendency to form a model in their own minds of the activities in others' minds. We are thinking about what others are thinking, about their individual thoughts. We observe their actions, their facial expressions, and their vocal intonation, which then relate to their beliefs and intentions."
"It is no coincidence that, a century ago, William Hope Harvey made Coin a young man. In the 1890s, the monetary standard offered some of the same mystery that Bitcoin does today. Young people in the 1890s wondered: What exactly is this money we have, and why does it have value? They might then have asked: How can we be on the gold standard when I almost never see a gold coin, only paper money, copper pennies, and silver dimes? What would happen if I walked into a bank and tried to demand my gold? Most people in the 1890s never tried to do that, and they might have been rebuffed if they did, because banks satisfied their obligations when they gave depositors paper dollars. So, even in the 1890s, the gold standard was a tantalizing mystery."
"Policymakers might take a lesson from both the real estate bubble narratives and the stock market crash narratives: during economic inflections, there is real analytical value to looking beyond the headlines and statistics. We should also consider that certain stories that recur with mutations play a significant role in our lives. Stories and legends from the past are scripts for the next boom or crash."
"If one searches newspapers of the twentieth century for contemporary explanations of recessions as they begin, one finds that most talk concerns leading indicators rather than ultimate causes. For example, economists tend to bring up central bank policy, or confidence indexes, or the level of unsold inventories. But if asked what caused the changes in these leading indicators, they are typically silent. It is usually changing narratives that account for these changes , but there is no professional consensus regarding the most impactful narratives through time. Economists are reluctant to bring up popular narratives that they only source about the narratives is hearsay, friends' or neighbors' talk. They usually have no way of knowing whether similar narratives were extant in past economic events. So, in their analyses, they do not mention changing narratives at all, as if they did not exist."
"As research methods advance, and as more social media data accumulate, textual analysis will become a stronger force in economics. It may allow us to move beyond 1930s-style models of income-consumption feedback and Keynesian multipliers that are still influential today and get closer to all the kinds of feedback that drive economic events. It will also help us better understand the deliberate manipulations and deceptions we have experienced, and it will help us formulate economic policies that take narratives into account."