Skip to main content


A Nobel laureate reveals the stories that make us spend (and save)

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

Robert J. Shiller
Princeton University Press
400 pp.
Purchase this item now

Where did boycotts originate? Who were the first Luddites? When were rolling suitcases invented? Stories such as these have traditionally garnered less attention from economists—who tend to focus on more easily quantified phenomena—than from anthropologists, sociologists, or psychologists. Robert Shiller wants to change that.

A Nobel laureate for his pioneering research on financial markets, Shiller argues in his new book, Narrative Economics, that the stories people tell can affect or even cause major economic events and therefore merit more attention from economists. By “narrative,” he refers to stories—and their underlying ideas or sentiments—that are transmitted through “word-of-mouth contagion,” including print, digital, and social media.

An analogy to epidemic dynamics runs throughout the book. Shiller references research from fields as diverse as marketing and neuroscience to describe how a narrative’s rate of “contagion” and “recovery” (how soon it is forgotten) are affected by human interest, celebrity, and a story’s visual imagery or ability to evoke intense emotion. Contagion and recovery rates, he argues, affect the prevalence and durability—the virality—of the associated narrative. Narratives “evolve” over time, potentially changing in their contagiousness and their effect on people’s behavior. “Mutations” arise when, for example, a slight change in wording or an association with a celebrity changes how contagious a narrative is; a small, random event can have compounding effects that lead to disproportionate influence.

Economic narratives—those that potentially affect people’s economic behavior—frequently include economic decisions that individuals who hear the story want to emulate. Shiller begins with the timely example of Bitcoin: If you hear that those who bought Bitcoin early got wealthy and its price is increasing, you will probably want to buy Bitcoin. Such narratives are often self-fulfilling prophesies. Others may simply be false, with more accurate versions or explicit corrections attracting far less attention. True or false, Shiller argues that narratives can complement or reinforce each other and that a constellation of narratives sometimes affects events in ways that no single narrative would.

The bulk of Shiller’s discussion delves into nine narratives—or pairs of opposing narratives—that he identifies as having played important roles in the economy over the past 150 years, mainly of the United States and Europe. They range from concerns about technology eliminating jobs to tales of “evil businesses” raising prices to the competing norms of conspicuous consumption and modest frugality. For each narrative, Shiller analyzes the rise and fall of salient phrases on Google Ngrams and in the ProQuest News and Newspapers database, but he focuses on the quotes and anecdotes that embodied the narratives at different points in history. The big events, such as the Great Depression and the Great Recession, will be familiar to most readers—the dozen other contractions and depressions since 1850 perhaps less so. For events big and small, the narratives Shiller presents based on contemporaneous primary sources are much more engaging than the employment, gross domestic product, and stock market numbers that economists generally use to describe them.

In addition to urging researchers to analyze the vast data on digital communication of narratives, Shiller advocates digitizing and assembling existing texts from the past and actively collecting data—through interviews and focus groups—about narratives of the present. He hopes that understanding the influence of narratives will allow leaders to “create and disseminate counternarratives that establish more rational and more public-spirited economic behavior.” He does not discuss the resemblance that such an intervention would have to government propaganda, although he does acknowledge the partisan associations of many narratives and the resulting challenges to objective research.

Shiller’s thorough discussion and many examples are certainly convincing as to the importance of narratives in individual economic decision-making and aggregate economic phenomena. However, most economists will likely want to focus on distinguishing narratives that cause economic events from those that are merely correlated with, or caused by, those events. Shiller acknowledges this challenge. Although the contagion process is “in many ways a random event,” there is no controlled randomization of narratives. Moreover, “big economic events usually can’t be described as caused by just a single constellation of narratives”; the interaction of competing or complementary narratives is an additional challenge for identifying causality.

Nevertheless, Shiller is optimistic about the potential for researchers to combine the growing quantities of available data with improvements in semantic analysis to provide the context necessary for distinguishing narratives’ causes from their effects

About the author

The reviewer is at the Office of the Chief Economist, Microsoft, Redmond, WA 98052, USA.