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Robert J. Shiller on narrative economics and COVID-19

With introductions by Markus Brunnermeier
July 10, 2020 / 12:30 pm
Markus' Academy

More from this series
Online: Zoom

Video and Slides

On Friday, July 10,2020, Robert J. Shiller joined the Princeton Bendheim Center for Finance’s for a discussion of narrative economics in light of the Covid-19 epidemic.

Shiller is a Professor of Economics at Yale University and a 2013 recipient of the Nobel Prize in Economics.

Watch the full presentation below and download the slides here.  You can also watch all Markus’ Academy webinars on the Princeton BCF YouTube channel.

Executive Summary

Our social world is driven by narratives. Narratives can spread like epidemics. “Most people do not respond to analytic discussion,” Shiller said. “They like stories.” There are lessons for narratives in the “epidemic curve,” which rises and falls like a bell-shaped curve. Importantly, the contagion rate of stories may increase as the effectiveness of the storytelling improves (more details, etc.).

Narratives about economics drive both big events and individual behavior during those events. As stories spread, ideas can go viral and move markets. We saw this during the Great Depression and other financial crises. After the 2008-2009 crisis, the market crashed but came back strong. One reason for the rally was that a strong narrative about “not losing out on the rise” led many investors to stay in the market when they otherwise might have left.

It’s difficult to predict how narratives will spread, but studying them can help us prepare for and respond to economic crises. Despite availability of digitized text, it’s still difficult to track popularity of narratives. Shiller says we should start collecting information on economic narratives now.