Robert J. Schiller on “Narrative Economics”

In an article for The New York Times (“Why Fox News Slimed a Purple Heart Recipient”), Tobin Smith discusses the importance of Robert J. Schiller‘s  concept of “Narrative Economics” as “contagious stories” so I checked out a position paper in which Schiller observes:

“By narrative economics I mean 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. A recession, for example, is a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, to postpone hiring new help in an existing business, or to express support for fiscally conservative government. They might make any of these decisions in reaction to the recession itself (that’s feedback), but to understand why a recession even started, we need more than a theory of feedback. We have to consider the possibility that sometimes the dominant reason why a recession is severe is related to the prevalence and vividness of certain stories, not the purely economic feedback or multipliers that economists love to model.

“The field of economics should be expanded to include serious quantitative study of changing popular narratives. To my knowledge, there has been no controlled experiment to prove the importance of changing narratives in causing economic fluctuations. We cannot easily prove that any association between changing narratives and economic outcomes is not all reverse causality, from the outcomes to the narratives. But there have been true controlled experiments showing that people respond strongly to narratives, in the fields of marketing (Escalas 2007); journalism (Machill et al. 2007 ); education (McQuiggan et al. 2008); health interventions (Slater et al. 2003); and philanthropy (Weber et al. 2006).

“My goal in this paper is to describe what we know about narratives and the penchant of the human mind to be engaged by them, to consider reasons to expect that narratives might well be thought of as important, largely exogenous shocks to the aggregate economy. This address extends some earlier work I have done with George Akerlof (Akerlof and Shiller, 2009, 2015) and some of my own earlier work going back decades (Shiller 1984), but develops the analysis and captures a much broader relevant literature.

“Of course, almost nothing beyond spots on the sun is truly exogenous in economics, but new narratives may be regarded often as causative innovations, since each narrative originates in the mind of a single individual (or a collaboration among a few). Joel Mokyr (2016) calls such an individual a ‘cultural entrepreneur,’ and traces the concept back to David Hume (1742) who wrote that ‘what depends on a few persons is,’ in great measure, to be ascribed to chance, or secret and unknown causes; what arises from a great number may often be accounted for by determinate and known causes.

“I will present here some thoughts on these effects of a ‘few persons’ and offer a class of mathematical models for some of these determinate and known causes of the path of narratives, quantifying the dynamics of narratives, and will consider how our understanding can be enhanced of major economic events: the Depression of 1920-21, the Great Depression of the 1930s, the Great Recession of 2007-2009, and our present time right after our narrative-filled 2016 presidential election.

“I use the term narrative to mean a simple story or easily expressed explanation of events that manypeople want to bring up in conversation or on news or social media because it can be used to stimulatethe concerns or emotions of others, and/or because it appears to advance self-interest. To be stimulating, it usually has some human interest either direct or implied. As I (and many others) use the term, a narrative is a gem for conversation, and may take the form of an extraordinary or heroic tale or even a joke. It is not generally a researched story, and may have glaring holes, as in ‘urban legends.’ The form of the narrative varies through time and across tellings, but maintains a core contagious element, in the forms that are successful in spreading. Why an element is contagious, when it may even ‘go viral,’ may be hard to understand, unless we reflect carefully on the reason people like to spread the narrative. Mutations in narratives spring up randomly, just as in organisms in evolutionary biology, and when they are contagious, the mutated narratives generate seemingly unpredictable changes in the economy.”

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In other words, if you cannot refute someone’s facts and/or destroy their integrity, then you “slime” them with “contagious stories,” as recently happened with Lt. Col. Alexander Vindman and Fiona Hill. This is much worse — and much more effective — than the classic argument ad hominem. Today, with social media, people can be “cancelled” out of a culture. For the Roy Cohns, Lee Atwaters, and Keith Millers in this world, it is the weapon of preference because it is the only one they have.

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Here is a direct link to Smith’s Times article.

Here is a direct link to Schiller’s position paper.



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