These are reading notes on Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert J. Shiller (Princeton University Press, 2019). They are adapted from David Drysdale's Moby Diction notes.
1The thesis
Economic narratives spread through societies like contagions, and in the end they produce real economic effects. They recur and mutate over time and spread in unpredictable ways. They drive personal behavior, such as where to invest and how much to save. They also drive mass attitudes and events. One example is the idea that private enterprise is a model of efficiency and should not face government intervention.
Shiller puts it in one line: "new contagious narratives cause economic events, and economic events cause changed narratives."
2Key ideas
2.1What an economic narrative is
An economic narrative is a contagious story that can change how people make economic decisions: how, why and where to invest, how much to spend or save, whether to buy a home or take a job. According to Shiller, such a narrative has three traits:
- It reminds people of facts they might have forgotten.
- It explains how things work in the economy.
- It shapes how people think about the justification or purpose of economic actions.
2.2Narratives have real-world effects
Narratives, alone or in constellation, produce real effects. People use them to interpret events. In Kahneman and Tversky's "representativeness heuristic," stories frame expectations and so inform behavior.
Narratives guide individual choices. A story that is virulent enough can also have mass impact. In the later twentieth century, narratives that described free markets in terms of efficiency helped feed a public reaction against regulation and government intervention.
2.3How narratives spread like diseases
The spread follows the pattern of a disease. The number of "infected" people retelling the story rises fast. Then the curve flattens and falls as people forget or lose interest. The result is a hump that rises and falls over months, years or even decades.
- A narrative can rise again. It is nearly impossible to eradicate. Details mutate but the fundamentals often persist. Bitcoin narratives echo nineteenth-century narratives about bimetallism. Narratives about machine learning and automation share a lot with Luddite stories and with 1960s talk of "cybernation."
- Economic narratives are hard to trace and predict. The economy is complex, and so are the conflicting ideas that bear on economic decisions. Like a contagion, a narrative may come back in other places and times.
- Spread has little to do with quality, importance or accuracy. It depends more on seemingly random details, such as how often people run into the story.
- Super-spreaders, including the media, algorithm-driven marketing and social media channels, can speed it up.
2.4Constellations
Large economic narratives can contain many smaller ones. Shiller calls these constellations. The narratives in a constellation reinforce each other and look more plausible next to one another. No single economic event is explained by one narrative or one constellation. Events are rarely that clear.
Confluences also matter. These are groups of narratives that seem unrelated but produce similar effects, and they can help drive or explain a major economic event.
2.5Narratives help the mind make sense of events
The human mind builds its understanding of events as narrative. Under the representativeness heuristic, people form expectations from an idealized story or model. They judge expectations by how well they fit the model, not by probability.
Narratives also work socially.
- In an ambiguous situation, people may adopt a role they have heard of to guide their response. With no clear logical answer, the brain may draw on memories of past experience, including others' experiences passed on as narratives.
- Narratives give us scripts. We act on little more than having heard that others acted that way. Shiller adds that economic narratives may be a small share of what people actually talk about.
- Economic narratives often rest on human interest. Tying a narrative to a named person lowers the rate of forgetting. It makes the story concrete and human.
- People decide based on what they think others think, which in turn rests on what they think others think.
Amy Webb says narratives communicate future scenarios better than abstract data does. They give strategists a clearer picture of possible outcomes, so they can imagine scenarios and decide how to act now.
2.6Consilience
Shiller uses "consilience" for the unity of knowledge across disciplines, especially the sciences and the humanities. The word comes from biologist E. O. Wilson, who used it for synthesizing knowledge from separate fields. It ties to the idea that open environments, ideas as constellations and cognitive diversity all help innovation. See the Where Good Ideas Come From notes and the Opposable Mind notes.
3What to take from it
- Ask which narratives are moving through your market, your team or your clients, and where each sits on its curve.
- Do not look for one narrative to explain an event. Look for the constellation.
- Expect an old story to return in new clothes.
- Give a story a human face when you want it remembered.
- Use narrative scenarios, not only data, when you plan for the future.
4Sources
- Shiller, Robert J. Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Princeton University Press, 2019.
- Wilson, E. O. Consilience: The Unity of Knowledge. Alfred Knopf, 2014.
Adapted from David Drysdale's Moby Diction notes.