Review of Narrative Economics: How Stories Go Viral and Drive Major Economic Events by

Robert Shiller
Princeton University Press, 2019
Stuart P. M. Mackintosh1

Robert Shiller’s masterful magnum opus is a remarkable capping of all his previous work on the
centrality of narratives in economics and our societies, from his earlier work in Irrational Exuberance
(2000), to his work with George Akerlof on Animal Spirits (2010), and Phishing for Phools (2016), to his
2017 Presidential Address at the AEA (Shiller 2017), Shiller has been gradually constructing the varying
routes, academic alleyways and winding, but always interconnected, storytelling lanes that together have
formed Narrative Economics. The book is without a doubt the most important work of a very prolific and
accomplished economist and teacher. It is a superb read, a sweeping survey of narratives, their
components, their structure, how we use them and abuse them daily, whether we are economists or not.
Shiller uses the standard Oxford English Dictionary definition of narrative and then deconstructs it and
analyses variants and elements throughout a sweeping and remarkable book. A narrative is “a story or
representation used to give explanatory or justificatory account of a society, period etc.” (p. xi). Shiller
adds, this is not enough, that stories can also be a song, joke, theory, explanation, or plan that has
emotional resonance and can be easily conveyed in casual conversation. Shiller defines an economic
narrative as ‘A contagious story that has the potential to change how people make economic decisions,
such as the decision to hire a worker or wait for better times” (p3).
Shiller urges the reader to always consider how our world is constructed upon a series of narratives of
different sorts, some short-term, some longer lasting, some driven by manias, others by a prevailing (quite
often erroneous) consensus. His stresses a story must have emotional drivers and linkages. The stories
that grasp us all and drive us are not solely homo economicus utilitarian constructs devoid of emotional
power. They are tales about how we should conceive of an event or events. These stories themselves mold
how we think about those events and how we react to them.
Being a good storyteller himself, Shiller lays out seven economic narrative propositions, followed by
seven types of perennial narratives. Humans prefer prime numbers. Shiller has thus created a neat
structure to help capture and contain his own narrative.
The seven propositions are:
1. Epidemics can be fast or slow, big or small;
2. Important economic narratives may comprise a small percentage of popular talk;
3. Narrative constellations have more impact than any one narrative;
4. The economic impact of narratives changes through time;
5. Truth is not enough to stop false narratives;
6. Contagion of narratives is built through repetition;
7. Narratives thrive on attachment, interest, identity, and patriotism.
In our current fraught and prolonged historical political and pandemic moment, Shiller’s analysis reads as
quite prescient, relevant, resonant. He presses the reader to reassess their own narrative constructs, those
they rely on or perhaps reject, to reappraise and reconsider them all.

1
Group of Thirty.
Shiller then lays out seven perennial economic narratives: Recurrence and mutation; panic versus
confidence; frugality versus conspicuous consumption; labor saving machines replace many jobs;
automation and AI replace almost all jobs; real estate booms and busts; stock market bubbles; boycotts,
profiteers and evil business; and the wage price spiral and evil labor unions.
Shiller analyzes examples, recent and distant, that conform to these differing archetypes of economic
narratives. We can all recognize them and place them. We have all – come on, admit it – been hostage to
or believed in one or another at certain times in our professional careers.
Shiller’s goal in the book is to force us as economists to internalize and understand the pivotal and
ongoing role of stories for our work and our effectiveness. He notes that too often, “traditional economic
approaches fail to examine the role of public beliefs in major economic events.” Yet again he is incisive.
We as economists too often overlook the stories that drive behavior (including our own) and instead busy
ourselves with tinkering with our mathematical models, rather than grapple with the complexities of
stories underpinned by emotions, beliefs, and motivations that drive actions in our societies and
economies.
Understanding the centrality of stories explicitly and implicitly is essential to our effectiveness as
advisors to firms, governments, and investors. Of course, delivery matters too, for if we fail to tell the
story, convincingly, emotively, and factually, we don’t succeed in getting our messages across. Too often
we can fail to deliver because we do not embed key messages in a compelling narrative. That is not to say
economists do not tell one another tales. We are constantly doing it. If you are a supply-sider your story
is constructed one way. If you are a neo-Keynesian your tale has different elements. It is rather our
weakness is in failing to realize all we do is shaped by the narratives we use and their strength, factual,
economic, and emotional, and our skill in conveying them.
Shiller’s own narrative force is prodigious. His is propelled by his understanding of economics, and by
his decades of studies of storytelling. Shiller’s writing exhibits colossal breath and depth. Like the very
best authors in the world he at one moment is using an economic example, then a psychological parallel,
then an evolutionary analog, and then a historical case, leavened by further recollections. It is a
wonderful read because of this style. You do not feel you are reading an economic text. It is an experience
rather of imbibing the distillation of decades of careful analysis and thought. Shiller just crafts it into a
story form you and I, as mere economic mortals, can understand and enjoy. We all could benefit from a
better understanding of storytelling and should take Shiller’s lessons on board.
Let me end with one important example where economists are consistently failing to construct stories that
compel action and engage with the rational and emotional side of our brains: Climate change. It is
striking, and deeply worrying and saddening, that the current economic stories we construct to make
sense of climate change and galvanize us to action have been a visible and continuing failure. What do I
mean? The prevailing economic consensus and professional stories we have been using have not been
effective. As economists we in this case default to our mathematical models and abandon storytelling.
We as a profession propose a discount rate for investment decisions and call for pricing of carbon.
Crucially it is not just the figures that matter: Our explanation of climate change, our failure to construct a
compelling emotional and rational narrative, means we as advisers diminish our relevance and
effectiveness. We have to date failed to assist and drive policymaking toward our common increasingly
urgent and threatened goal of keeping the global temperature increases to well below 2 degrees Celsius by
2050. So in 2021 G20 climate policymakers and central bankers are way ahead of the economics
profession, driving forward as they must while we lack relevance. That needs to change – we need a new
climate change narrative and story that helps achieve our common economic and planetary goals,
grounded upon facts, but buttressed by narrative and emotional linkages if we are to be effective advisors
and tale tellers. If ever there was a case to adopt a Shillerian approach, to construct a new story that is
economic, factual, and compelling evocatively and emotionally, this is it.
The first step in fashioning effective collective stories, in understanding failed ones and successful ones,
short-term ones and long-term ones, is a better comprehension of the components of our own tales and
what makes a good economic narrative. Shiller’s Narrative Economics provides just that step.
We all should read Shiller’s masterwork. We would all be better for it. Not only is consciously
considering the importance of storytelling a good lesson in and of itself, but the reader will also feel, as I
did, as if they have just had a bracing academic seminar from a giant in the profession.

References
Akerlof, George., and Shiller, Robert. 2016. Phishing for Phools: The Economics of Manipulation and
Deception. Princeton: Princeton University.

Akerlof, George, and Shiller, Robert. 2010. Animal Spirits: How Human Psychology Drives the Economy,
and Why It Matters for Global Capitalism. Princeton: Princeton University.

Shiller, Robert. 2017. Presidential address delivered at the 129th annual meeting of the American
Economic Association. https://cowles.yale.edu/sites/default/files/files/pub/d20/d2069.pdf

Shiller, Robert. 2000. Irrational Exuberance. Princeton: Princeton University Press.