The book is full of promise, written by an author acclaimed for his pioneering work in applying psychology research about impaired mental processes in decision-making to economic and financial market analysis.Ī well-known proposition of modern psychology, termed the representativeness heuristic by authors Daniel Kahneman and Amos Tversky (1973), is that people form their expectations based on the prominence of an idealized narrative rather than estimated probabilities. Shiller in his new book focuses on an issue of fundamental importance to understanding economic and financial market cycles-the rise and fall of narratives. Recession - housing bubble -monetary policy - narrative economics - business cycleīrendan Brown is a nonresident senior fellow at the Hudson Institute and an associated scholar of the Mises Institute. Ignoring or downplaying money’s role leaves Narrative Economics a disappointment. Drawing on medical evidence about the spread of infectious disease, Shiller argues that “economic fluctuations are substantially driven by contagion of oversimplified and easily transmitted variants of economic narratives.” But Shiller ignores the powerful role of monetary disorder, whether in forming the narrative or determining the contagion rate, or as a competitor to the narrative.
Princeton: Princeton University Press, 2019Ībstract: Much of Shiller’s new book is about how economic narratives form, spread, and fade. Narrative Economics: How Stories Go Viral and Drive Major Economic Events
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