Narrative Economics: How Stories Go Viral and Drive Major Economic Events Paperback – September 1, 2020

Schiller is a Nobel prize winning economist and best-selling author. He also gives frequent interviews to the financial press providing his latest views on the economy and investing. In this work he has emphasized psychological aspects in the form of the stories or narratives people tell about the economy and investing.He takes an historical approach using huge databases especially from Google that show that people picked up certain narratives or stories and these stories affected the way they thought and acted when investing. Research has shown that consistent brain regions are wired to respond to stories that lead to thinking in analogies. Models of the future trajectory of disease epidemics can be used to explain the spread of narratives. The spread of epidemic pathogens and the spread of narratives through time are very similar. He sees major moves happening in world affairs because of seemingly irrelevant mutations in narratives. The narratives themselves can BE BASED ON quite a few different facts and combine with other narratives to have big effects. Before World War I there was a narrative that the country who attacked another first would have an advantage. The story became very popular and helped lead to World War I. The idea was eventually proven to be wrong but not in time to stop the war. The story spread much faster and effectively than the proof that it was wrong. Recent research has shown that people are more likely to share novel information and the new story correcting the original novel story may very well not be as contagious as the first incorrect story. The result is that the false narrative can have a major effect on economic activity long after it has been corrected.For example the Martin Luther King's “I Have a Dream” speech which eventually developed into the backbone of a powerful narrative that continues to grow by contagion for decades afterward. A bigger narrative the American Dream justifies people desiring to purchase expensive cars, extravagant homes, and generally justifies conspicuous consumption.Another interesting example was the biography of Steve Jobs by Walter Isaacson. The publisher put it into the market just weeks after Job's death. Jobs, a very interesting person with many human frailties, founded his company. Subsequently h was forced out perhaps because of his eccentricities. When Apple started going downhill he was called back and helped create the powerhouse that now exists. Apparently a lot of people like the story because it shows that someone like Jobs with many weaknesses could still become very, very successful.Another example is the crash of 1929. A lot of people think it occurred basically in a few days in October, 1929. In reality the drop continued till 1932 almost 3 years and the total loss was 86%. Even today when people talk about the stock market crash they are most likely referencing this particular crash at least as in example. Stories and legends from the past are scripts for the next boom or crash.The term boycott actually comes from what happened to Charles Boycott around 1880 as a land manager in Ireland. He had disagreements with the tenants who united against him making it almost impossible to do his job. He was boycotted. This became a very effective weapon for unionism.The US economy had problems during the early 1920s and 1930s. It was easier during the 1920s to convince people that they should lower their wage expectations than in the 1930s. In the 1930s people blamed businessmen for all of their economic woes. Apparently another factor was that during the 1920-21 depression prices dropped considerably and it was worth waiting to make purchases. This did not help the economy. Schiller points out that household decisions were made primarily by women and their thinking at the time has not been studied very much. Estimates are that women were responsible for about 85% of the spending of incomes in the United States. If they thought prices were unfair and were willing to boycott particular items or categories that were thought to be especially unfair. This put a lot of people in these areas out of work.Schiller makes some suggestions on databases that could be kept in the future that would facilitate tracing narratives and their affect on the economy, politics, etc. He goes further to suggest that the leaders could use counter narratives to correct misleading narratives that could harm our country.

Good book recommendation from #fintwit. Very well researched and authored. This is a cutting edge exploration of where I believe economic analysis is going. Shiller correctly highlights that the days of grinding through commoditized econ statistics is passing and we must explore why those statistics are at levels or trending and that will be found in the narrative.Financial analysis in general is trending away from conventional mathematical analysis of econ stats and financial statements and toward much more quantitative analysis of volatility and textual analysis. Shiller's book makes a good case for the latter.This is a big picture work and will not assist in daily or longer trading and portfolio management decisions. It is long, but worthwhile.

Nothing to complain

I am usually quite excited to read Shiller's books and so reading narrative economics was a disappointment. The author has expounded on instincts that have grown through his career of looking at the irrationalities of economic systems and tried to formalize them via a new field he calls narrative economics. The ideas are a mixture of neuroeconomics, epidemiology, behavioral economics and history. The result is somewhat novel but simultaneous very obvious in some instances and very stretched in others.Narrative economics analyzes the role of narratives in economic life. The author notices, with frequency of phrase identification and other metrics, that certain economic narrative share properties similar to medical epidemics. In particular concepts grab the mind and pass on easily to others and subsequently affect the economic system. Thus when analyzing certain economic phenomenon, like bubbles, or depressions, we need to include the influence of narratives on the outcome space to better understand the phenomenon. This is of course an important perspective that is worthy of consideration but the book is quite meandering and doesn't engage the reader well. The author highlights that people caught up in the narratives often miss the details and aspects of the authors ideas seem close to concepts like memetics, where concepts are formed and spread rapidly through populations. This book is effectively a mixture of a economics, sociology and epidemic study. The author states the obvious by reminding us that the spread of a concept often is done not by the originator but rather by an individual who has the ear of a broader audience. Much of the book looks at phrases and their history and how that history might be a little surprising. Some of the material is highly questionable, for example discussing frugality as a narrative in the depression. The author is testing the waters on a concept which is certainly true but very hard to definitively attribute in a causal form. People's minds are influenced by instincts that can be guided through simplified concepts in the form of narratives, these have the power to change economic landscapes, they can be unpredictable in timing and magnitude, they should be studied. That is pretty much the idea.Narrative economics is disappointing. The author tries to formalize the similarities between epidemic phenomenon and economic narratives ability to create distortions in the economic landscape. Such a link exists at times but that's distinct from then the study of narratives. Concepts around narratives seems quite overlapping with so called memetics and so this idea isn't really that new, its just novel in being used to explain distortions to an economic landscape. The book does give some interesting history but it isn't clearly argued and doesn't have clear direction, it is readable but uninspiring.

Good

The book gives a innovative vision about economy study. It proposes a complexity object as the narratives to understand the macroeconomic events.

Spaß beiseite! Dieses Buch ist ein weiteres Meisterwerk von Robert Shiller, bei seiner Forschung zur Behavioral Finance und Spekulationsblasen. Verständlich führt er uns dabei durch seine Erkenntnisse und gibt weitreichende Eindrücke wie Geschichten unser Urteilsvermögen beeinflussen.Ich bin wieder einmal hochbeeindruckt und habe mich das ein oder andere Mal ertappt. Tolles Buch, super Autor und fairer Preis! Was will man mehr?!

Uma vez mais, Shiller nos brinda com a chance de entender como narrativas ajudam a formar a opinião das pessoas e a dirigir o seu comportamento, ao longo da história. O vencedor do Nobel mostra como crenças podem ser muito mais fortes que a racionalidade na hora de definir como as pessoas se comportam no mercado.

As much as I enjoy reading and learning about grand strategy and geopolitics, most of the insights are too abstract to be used in an investment process. Papic's book is an exception and a very good one. Does this geopolitical event impact macroeconomic forces that strongly influence market returns? This is a critical question, and Papic provides a disciplined, repeatable framework for answering it.