Narrative Economics

Book Review by Shaktiman Singh

Stories are known to pass on traditional knowledge from one generation to other. Sometimes, stories play the key role in changing the perspective of an individual or even influencing mass psyche. Our fears, hopes and biases are impacted on a daily basis by popular narrative. Which in turn, play a part in our decision making. And that includes financial decisions.

But then why stories, or narrative, is missing from economical analysis. This question is addressed in detail using a plethora of real world cases in this insightful book from Robert J. Shiller.

Key ideas/examples that I liked from the book:

One of the pivotal factor in the popularity and massive buying of Bitcoins was the narrative behind it. It is a currency which is not controlled by any bank or government. It is a new technology with a promise of future. It offers you to be a part of a new, myterious, futuristic, liberal storyline.

There are many striking similarities between a disease epidemic and a contagious economic narrative. The spread, initial spikes, secondary waves, and eventual dying down of an epidemic and an economic narrative have the same pattern.

Knowing this trend, one can model the economic responses to a popular narrative in advance and take pre-emptive actions.

There are a set of economic narratives that occur again and again. One of the most popular narrative is Collective panic vs Collective confidencOnee. of the most popular narrative is Collective panic vs Collective confidence.

If we want to have a better understanding of what’s happening now, we need to recognize that what we’re experiencing is often a confluence of one of the many perennial stories from the past.

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The book talks about the aspects of economy which are impacted by popular narratives. Modern Technology allows us to analyse emotions, opinions, feelings around a topic which is significant to an economic event. The writer urges the investors, researchers, policy makers and economists to take advantage of the power of narratives to understand the economic events and start acting beforehand instead of reacting the event.

Highly recommended to anyone with an interest in

macroeconomics ..