Robert Shiller, a Nobel prize-winning economist and the author of Narrative Economics, explains how narratives work in economics. In so doing, he addresses the term ‘narrative economics’.
Although the field is less popular in Economics, Robert Shiller believes that narratives, indirectly, control the flow of the economy. His belief is not conjectural as similar cases in which narratives are being influential in other sectors such as education and marketing are proven through true controlled experiments.
Shiller argues that the world and its people work according to stories. Those who narrate a better story are capable of controlling the trend, including in the economy.
By narrative economics, he means “the study of the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations.”
It is the story that is able to affect humans’ emotions that can affect their behavior. In Economics, he explains that narratives potentially influence the way people spend their money, issue policies, and do other major economic activities.
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Robert Shiller: Instances of Narrative Economics
To simplify the explanation of narrative economics, Shiller, told a CNBC reporter, explains the way it works through instances. To give recent, relatable instances, he picks the upcoming global recession and the ongoing trade wars.
Capitalizing the perception of the economists and business owners upon the possibly coming event and the currently progressing events, Shiller describes these two events as self-fulfilling prophecies. It will be and is happening, to some extent, if many people believe the narration.
Shiller also recites other understandable events to expound narrative economics. He mentions the narratives of automation, artificial intelligence, and labor-saving machines that have been occurring since the 1830s. By that time, people were afraid that there would be much unemployment and they began to be strongly against ‘machines and robots’. It is still happening today.
On the same occasion, he also breaks down how Bitcoin gained huge popularity. Narratives such as part of future society, economic inequality, and anti-hacked currency lever the popularity of the aforementioned cryptocurrency.
“And it’s a matter of identity. You know, people are looking for ‘who am I?’ So, in the case where we’re worried about this computer age developing, we want to somehow be part of it. We want to be part of the ‘in’ people, and so there’s a really easy way to do it. Buy some bitcoin. That is so easy to do. You don’t have to understand, but now you’re a part of it,” Shiller said.
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