In a new book, Yale's Nobel Laureate economist Robert Shiller warns of the consequences of viral narratives that turn into epidemics.
Yale University’s Nobel laureate professor of economics, Robert Shiller has published a provocative new book advancing the idea that stories or narratives that spread like epidemics have a bigger impact on our economy than most in his profession—who are typically constrained by rigid quantitative techniques—consider in their theories. He believes that the so-called dismal science should be taught with a bigger dose of the humanities—namely history and psychology.
Yes, social media couldn’t be more prominent. With our tweeting president, for example, and the immediate responses. It speeds things up. But I’m arguing in my book that the epidemic quality of narratives goes back thousands of years. It’s not new. It did move history even thousands of years ago. But one thing that’s different now is that with social media people find like-minded people to befriend more easily, so it involves more splinter groups that have more idiosyncratic views.
Multiple narratives. See, the Great Depression was “great” because it was like a perfect storm, a number of narratives all encouraged people to cut back on their spending. So I talk about some of them in the book.I think so. In both the cases of the Great Depression and the Great Recession, the preceding decade had a bubble narrative that eventually collapsed. There were skeptics who weren’t heeded during the 1920s and the 1990s, up till 2007. But then they eventually got contagious enough.
So it’s almost like the economics of spin. In what way do you foresee economic narratives as being a tool for the prediction of major market developments, including recessions? How reliable is the data, given that news often follows events.. And in that paper, I was already talking about epidemics. I don’t know if I used the word epidemic, but it was sort of in there. And I was confronting the idea that market efficiency shows that markets are not bubbly.
I think that what I’m trying to do in this book is describe what’s happening in the future in economics. That there will be more of this, and I think it should be, and probably will be, not so focused on stock picking and marketing, because it infects all of economics. The economists like to use the paradigm actually first clarified by Samuelson. That we’ll describe people as intertemporal utility maximisers, with a consistent utility function and never change their mind about it.
You would think the original paper by Satoshi Nakamoto would be a kind of nerdy, technical paper that didn’t interest anyone. But people are fascinated by it. I think it’s because the story links into some deep fears, or emotions, and also because it has good story quality. The story quality is that nobody can find Satoshi Nakamoto. It becomes a mystery story.
of a newspaper in 1765 by a man—I think it’s a pseudonym— Alexander Windmill, about all the talk that was going on in 1765, and that was a recession year. It’s not in the NBER list of recessions because they don’t start until 1854. This was almost 100 years earlier. And it took place, that the recession was caused as the aftermath of the French-Indian war, also called the Seven Years War. Which you may have never heard of. Anyway, there was a recession after the war.
Well, I don’t have any optimistic tone that things will get better. I’m a little worried at this time of the proliferation of social media that we may be going in a bad direction.Why did I write the book? It came out of a book I wrote with George Akerlof calledIrrational Exuberance
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