Economic narratives are an underlying force for the economy: that is why they should and cannot be ignored, says Nobel laureate Robert Shiller, who has recently published what can be considered as the book that sets the research agenda on this subject applied to the fields of Economics and Finance. Fields where the concept of narratives appears to be awfully underemployed, when compared to other social sciences.
The author choses a perfectly synchronic analogy to describe the behavior of narratives: they should be thought of – he says – as a disease that follows the similar contagion models described by epidemiologists. Unlike Behavioral Economics, that looks for consistent behavioral pattern, Robert Shiller through his research seeks for something that is inconsistent through time, i.e. changing human behavior modeled by stories that go viral and change peoples´ perspective on life and economics. A clear example of a viral narrative that has repeated itself throughout history – a so-called perennial narrative – is the one that sees jobs threatened by technological innovations. It started back in the 19th century with the concept of labor-saving-machine, reappeared the following century under the guise of technological unemployment, continued with automation in the ´50s up until today where the threat to our jobs is posed by artificial intelligence. Other instances of perennial economic narratives studied by Shiller in his book are, among others: the panic/confidence narrative, booms and busts in the real estate, stock market bubbles, and the wage-price spiral/evil labor unions narrative. These narratives, just like viruses, keep mutating and resurfacing over time, thereby influencing the economic activity. Further, economically salient narratives appearing in the aftermath of the great financial crisis can be identified with the uprising of populist-, right-wing-, discriminatory-discourses, a new wave of great depression, trade wars, sustainability/frugality, real estate bubbles, and more recently with pandemics, quantitative easing, and ad personam narratives such as the case with Donald Trump. We must take into account both the rise and fall of viral narratives, which means that what is being forgotten is as much worthy of analysis as what is fashionable, explains Shiller. Finally, his prediction and at the same time research proposal entails the huge influence that new technologies, data availability and digitalization will have on the formation of new economic theories.
In the video below you can watch the entire event, including the lively discussion following the author´s presentation of the book where a series of questions pertaining the predictive capacity of narratives, changing narratives as changing paradigms, the tools used to deliberately establish certain narratives, the relation between uncertainty, misinformation and virality, and many more were addressed.
About the author: Robert J. Shiller is Professor of Economics at Yale University and has received in 2013 the Nobel Prize in economics for his contribution on the dynamics of asset prices. He is author of Market Volatility (1990), Irrational Exuberance (2000), Finance and the Good Society (2012) and Narrative Economics: How Stories Go Viral and Drive Major Economic Events (2019) and has co-authored several further publications.