Robert Shiller on Narratives and the Next Paradigm

On March 16, we hosted a video seminar with the Nobel prize-winning economist Robert Shiller (Yale University) and author of the book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events”. Shiller calls for a different approach to economic research in order to make economics more relevant and argues that viral narratives should be taken into account given the role they play in driving economic events.

Narratives are gaining importance in all social sciences, but in Economics and Finance, their role is still not appreciated (Figure 1). Shiller wishes “that economist would recognize the reality of these stories and their effects on our thinking.” But this would require them to think more like “humanists”.

Shiller differentiates between “narratives” and “stories” in that narratives already incorporate a world view and therefore transfer a message to the recipient. He compares them to viruses as they spread from person to person by contagion. These narratives often build on small and personal stories and their “rate of contagion” is not necessarily based on quality or truth – even though Shiller says that most narratives have a truth to them – but on the emotional appeal.

This emotional appeal, Shiller argues, leads to a longevity of narratives which he calls perennial narratives. Even though some narratives seem to disappear, they have the ability to pop up once again similar to viruses. The last famous instance where this happened was when Donald Trump successfully resurrected the narrative “Make America Great Again” which was already used by Ronald Reagan.

Technology and social media, Shiller states, is enhancing the rate of contagion and is, therefore, a decisive part if a story goes viral nowadays. It also presents the opportunity to connect with like-minded people more easily in order to build the ground for something going viral.

How to develop a new narrative?

During the discussion of Shillers input, Elisabeth Wehling (University of California, Berkeley) raised the point that, because narratives often build on easily comprehensible stories, they tend to show a direct causal frame for a more complex systemic problem. Looking at the success of the communication methods of Donald Trump, one would see that complex issues like inequality, migration and climate change are explained by direct causal frames like “Trickle Down Economics”, “Extreme Weather Occurrences” and “Building a Wall”. Wehling also points to the emotional attachments of certain words and how they linguistically transmit a message that can guide a narrative.

When thinking about a positive narrative for the future that could guide economic actions after and during the Corona-Crisis, it is important to look at the difference between direct causal and systemic explanations. Maja Göpel (WBGU) argues that it is a societal problem. A systemic problem is not suited to be solved by just one leader but requires a multitude of experts as we see right now. However, our societal structure is primed on hierarchical thinking and society craves for the easy direct causal explanation even though it may not be the right one.

That makes the development of a positive counter-narrative that acknowledges the systemic nature of problems so difficult. Shiller argues that Greta Thunberg was able to develop one of the strongest narratives in recent years while addressing the systemic nature of the climate crisis. She did so by demonstrating personal affection with the topic and delivering an emotional message. The success of Greta Thunberg may indicate that the Green Deal is the next big narrative that could shape economic development in the future.