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Robert J. Shiller, Narrative Economics: How Stories Go Viral & Drive Major Economic Events

Carsten Herrmann-Pillath
p. 403-408
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Robert J. Shiller, Narrative Economics: How Stories Go Viral & Drive Major Economic Events, Princeton: Princeton University Press, 2019, 400 pages, 978-069118229-2

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Crédits : Princeton University Press

1The concept of ‘narratives’ is one of the ‘animal spirits’ in the 2009 book that Robert Schiller co-authored with another Nobel laureate, George Akerlof (Akerlof and Shiller, 2009). Since then, Shiller has developed the program of a ‘narrative economics’, with milestones such as the 2017 American Economic Association address (Shiller, 2017). The book Narrative Economics summarizes the state of the art of this emerging research program and introduces it to a wider audience. It is written in a non-technical language and presents many cases of narratives in detail, such as narratives about technological change or narratives about real estate market developments. The core idea of the book is that narratives exert an independent causal impact on the economy and as such deserve a place in economic theory and economic applications (e.g. forecasting). In simplest terms, a ‘narrative’ is a story told by people and disseminated in the public, thus shaping societal perceptions of the economic situation and expectations about future economic developments.

2The bulk of the book is devoted to nine case studies which are an informative and often even entertaining read (well, good narratives about narratives). The cases reach from major recessions to technological innovations such as Bitcoin. Each chapter introduces a ‘narrative constellation’. A narrative constellation is a historical context combined with a topical focus, in which many related narratives are embedded, thus leveraging their impact on society and economy. This results in certain types of narratives which appear repeatedly in similar economic contexts, across time and space. Examples include the narrative constellations that “labor-saving machines replace many jobs” or “real estate booms and bust”. These are constellations that can emerge at different historical junctures and across different places: For example, the “labor saving machines” constellation emerged for the first time during the early industrialization and re-emerged several times since then, with the AI topic as the most recent version, to which Shiller devotes another chapter. The nine cases make up part III of the book.

3Part I introduces the concept of narrative economics to the reader, also with several vignettes about narratives (such as the ‘Laffer curve’) to illustrate the concept. Important for my discussion, chapters 2 and 3 present the case for cross-disciplinary perspectives on narratives. Shiller clearly states that the concept does not derive from internal economic theorizing, but roots in other disciplines, from the neurosciences to literary studies. However, part I narrows down the focus to the question “Why do some narratives go viral?” (chapter 4) and addresses it by referring to epidemiology as the main theoretical frame, which is also salient in the technical appendix.

4Part II, entitled “The Foundations of Narrative Economics”, is short and attempts at justifying the assumption that narratives have autonomous causal force on economic processes. Chapter 8 in part II presents “seven propositions” on narrative economics which do not really fix theoretical foundations but are generalizations about certain aspects of the dynamics of the diffusion of narratives, such as that facts cannot stop false narratives once they achieved momentum, or that their diffusion depends on certain recurrent contexts which provide the motivation to re-tell a narrative. There are but few remarks on why people rely on narratives at all, although Shiller raised this as an important question when briefly considering the cross-disciplinary perspectives. For example, Shiller mentions ‘identity’ as an important driver of narrative action.

5The lack of comprehensive theorizing about narratives may be explained by the nature of the book as belonging to the ‘popular science’ genre. Beyond epidemiology, Shiller does not present an integrative economic theory of narratives, despite the wide-ranging introduction of cross-disciplinary perspectives in the introduction. Indeed, this reviewer did a superficial Google Scholar check about the state of the art: Most applications of ‘narrative economics’ relate to epidemiology or are just generic, and most cross-disciplinary uses of the term are in heterodox economics, economic sociology and other fields of research. Shiller himself sticks to the epidemiology frame also in his more recent work, as is evident from his ‘Godley-Tobin Memorial Lecture’ (Shiller, 2021).

6I fully endorse the program of a narrative turn in economics, and I welcome that an intellectual leader in the economics establishment defends this case now for many years. But at the same time, I am concerned that the way in which he does it may also constrain the further development of the narrative turn by the limited theoretical range and biases of Shiller’s program.

7Shiller presents a selection of a list of “biggest economic events” in the United States as defined by the NBER, which are core references for his nine case studies. This list only includes depressions and recessions. The reader must get the impression that narratives mainly relate to pathological states of the economy which may be bolstered by the epidemiology framework, which intuitively, but not necessarily, suggests the image of diseases spreading across society. I think that Shiller does not really think that narratives are always harmful, as his discussion of the ‘American Dream’ clearly shows. Yet, most of his examples are indeed about harmful impacts of narratives on the way how economic agents perceive the economy. That is, he treats narratives as facts of economic life, but with the eye of the economic physician.

8This bias reflects a theoretical deficit that was already discernible in the 2009 book on ‘animal spirits’, and which is grounded in the wider context of behavioral economics. In another bestselling book, Daniel Kahneman (2011) also makes the case for including narratives as an explanatory concept, and presents evidence that narratives distort the perception of allegedly objective characteristics of experiences. He introduces this bias after implicitly interpreting ‘animal spirits’ as forces that undermine rationality, following the precepts of the ‘dual systems’ view on human behavior. Accordingly, Shiller’s cases are mostly about how narratives may cause irrational responses to economic situations. Here, the epidemiology context, as in the theory of rational bubbles, opens up the possibility that the narrative may be even individually rational, but leads towards collective irrationality.

9This observation shows that there is still a deep theoretical gap between economics and the disciplines from which the narrative theory originated. Shiller continues to adhere to the reference point of rational action to define narrative theory within the disciplinary domain of economics, and this leads him to tell mostly stories about harmful narratives. This bias is reinforced by his focus on events’ such as recessions, which indeed look like outbreaks of diseases. But some of Shiller’s cases do not only refer to events, but to long term states of the economy or even fundamental ways to conceptualize the economy. For example, ongoing technological change is not an event like a recession, neither are social trends such as the post-war growth optimism and the unfolding of consumer society. But Shiller does not pursue this aspect further. Indeed, as the discussion of narratives in the economic rhetoric strand of literature has shown, even the economics literature features certain narratives over very long time spans (think of Ricardo’s comparative advantage narrative about wine and cloth). The question is whether this also means that false representations of reality persist over the same long time. I do not deny that narratives may be harmful (which includes, however, also economics narratives), but we are lacking a criterion to distinguish between harmful and beneficial narratives, unless we assume that narratives are harmful in a principled way.

10There is a difference between the Kahneman and the Shiller approaches to narratives since Kahneman presents a systematic explanation for the alleged reality-distorting effect of narratives, whereas Shiller just seems to take this for granted in selecting his cases. Shiller quotes Kahneman only once, in the context of the ‘affect heuristics’. This shows that his focus on epidemiology blocks a more precise elaboration on the psychological foundations of narratives. In that sense, Shiller is a macroeconomist and treats behavioral foundations only as instrumental for explaining why the epidemiological dynamics catches people’s minds at all. In a way, narrative economics is lacking a microeconomic grounding. But what does that mean? Given Shiller’s sweeping claims on cross-disciplinary reach, this appears as a major deficit of the book, which allows the negative bias to shape its entire argument.

11This review cannot present details on a view that would question the negative bias on narratives shared by both Shiller and Kahneman, and which has already been developed by other authors whom Shiller ignores, weakening his claims of unique intellectual authorship. This may be a reality distorting narrative of its own. In the fields of neurosciences and psychology, many researchers such as Damasio (2010, 2019) make the case for approaching narratives as constitutive for the personal identity of human individuals, which has also informed John Davis’ comprehensive approach to identity in economics (Davis, 2011). Tellingly, Davis’ version of ‘identity economics’ differs from identity economics à la Akerlof and Kranton (2000). That is, without narratives there is no agency at all: Don Ross (2007) goes as far as claiming that selves are narrative constructs. In other words, in this view narratives become an essential part of a non-dualistic approach to the economic agent which would radically eschew ‘rationality’ as a reference point. Although Shiller seems to be aware of this literature, such as when citing the influential contribution by Jerome Bruner (1991) (which I would judge to be the mainstream beyond economics, and Kahneman as a minority view), but does not explore this systematically.

12This lack of integrative theorizing results in a limited methodological basis for narrative economics. Chapter 19 in part IV concerns an outlook on future research that Schiller imagines as collecting, systematizing and applying data on narratives in relevant populations of economic agents. However, Shiller does not envisage a cross-disciplinary synthesis of narrative economics. The aforementioned literature on identity and narratives suggests that we must ground narrative analysis on a new theory of the economic agent, to which heterodox economists have contributed over many decades. This would imply that we also need to employ narrative research on individuals, and not only populations of economic agents. This is already salient in Shiller’s cases, such as his inspiring observations on the emergence of a culture of frugality in the wake of the Great Depression. There are fields of research beyond economics in the narrow sense, yet still part of the economic landscape, where such an integrative approach is practiced for long, such as in research on entrepreneurship and family business (e.g., Parada and Dawson, 2017).

13Shiller simply ignores the extremely rich methodologies of narrative analysis that are available across many disciplines, such as cognitive sciences or literary studies. One case in point is his concept of ‘narrative constellations’. Shiller does not exploit the very rich tool box of literary studies to put more analytical flesh on that conceptual bone. ‘Constellations’ relate to one entire branch of narrative research, namely ‘genre theory’. There is no further analysis of narrative structures across different genres aka constellations, and so on. In the case of Shiller's book, we deal with the same phenomenon as in many other appropriations of other non-economic disciplines in economics: The cross-disciplinary reference serves to legitimize the conceptual innovation in the economics community. However, such ‘borrowed’ concepts are further developed as internal economics notions, cutting the links to other disciplines and building an independent theoretical approach consistent with the general economics paradigm. This results in impoverishing the original inspiration.

14This attitude transpires at many points in the book. Another, more specific example of selective adoption of methods of other disciplines is that Shiller recommends focus groups as a method in narrative economics. As he presents it, this method is complementary to epidemiological analysis, in a diagnostic sense. Focus group interviews may both serve as early warning tools to identify emerging narratives, and they can help to understand why people subscribe to specific narratives. But Shiller does not raise the more fundamental issue of the relationship between quantitative and qualitative analysis in economics. Focus groups are a well-established qualitative research strategy, and indeed, narrative analysis would certainly involve a very strong component of qualitative research of any kind. But the epistemic culture of economics, defining itself by quantitative methods, stops Shiller to really immersing in cross-disciplinary thinking.

15To sum up, this book is a welcome invitation to expand economics into new topical fields which would open the doors to serious cross-disciplinary exchanges. But as stated, it does not fulfill its promise.

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Akerlof, George A., and Rachel E. Kranton. 2000. Economics and Identity. Quarterly Journal of Economics, 115(3): 715-753.

Akerlof, George A., and Robert J. Shiller. 2009. Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism. Princeton: Princeton University Press.

Bruner, Jerome. 1991. The Narrative Construction of Reality. Critical Inquiry, 18(1): 1-21.

Damasio, Antonio R. 2010. Self Comes to Mind: Constructing the Conscious Brain. New York: Pantheon.

Damasio, Antonio R. 2018. The Strange Order of Things: Life, Feeling, and the Making of Cultures. New York: Pantheon.

Davis, John B. 2011. Individuals and Identity in Economics. Cambridge: Cambridge University Press.

Kahneman, Daniel. 2011. Thinking Fast and Slow. New York: Farrar, Straus and Giroux.

Parada, Maria Jose, and Alexandra Dawson. 2017. Building Family Business Identity Through Transgenerational Narratives. Journal of Organizational Change Management, 30(3): 344-356.

Ross, Don. 2007. H. sapiens as Ecologically Special: What does Language Contribute? Language sciences, 29(5): 710-731.

Shiller, Robert J. 2017. Narrative Economics. American Economic Review, 107(4): 967-1004.

Shiller, Robert J. 2021. The Godley-Tobin Memorial Lecture. Animal Spirits and Viral Narratives. Review of Keynesian Economics, 9(1): 1-10.

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Carsten Herrmann-Pillath, « Robert J. Shiller, Narrative Economics: How Stories Go Viral & Drive Major Economic Events »Œconomia, 11-2 | 2021, 403-408.

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Carsten Herrmann-Pillath, « Robert J. Shiller, Narrative Economics: How Stories Go Viral & Drive Major Economic Events »Œconomia [En ligne], 11-2 | 2021, mis en ligne le 01 juin 2021, consulté le 22 septembre 2021. URL : ; DOI :

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Carsten Herrmann-Pillath

Max Weber Centre for Advanced Cultural and Social Studies, Erfurt University.

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