Narrative Economics with Nobel Prize-winner Robert Shiller | LSE Online Event

welcome everyone to this lse online public lecture which forms part of lse's shaping the post covered world initiative i'm charlie bean and i'm presently a professor in the economics department at lse i'll be chairing tonight's lecture by professor robert schiller which is entitled narrative economics the event is being recorded and hopefully a podcast will be available online providing we get no technical difficulties also if you wish to address a question to our speaker tonight you should use the q a function on zoom please try to keep your question short and remember to include both your name and background now our speaker tonight really requires very little introduction from me robert schiller is one of the world's leading economic thinkers working mainly at the interface between behavioral economics financial markets and macroeconomics much of his work exposes the limitations of adopting a narrow rational man perspective on financial markets and the benefits that flow from introducing a much broader view of human behavior aside from almost 150 scientific papers in learning journals he's published several major books these include macro markets in 1993 that advanced the case for governments issuing gdp linked bonds and then in 2000 irrational exuberance that foresaw some of the key drivers of the 2007-8 financial crisis his most recent book narrative economics which he'll be talking about tonight was published late last year but has just appeared in paperback and it exposes the importance of stories in driving economic events and explores how beliefs can go viral in their impact for his path-breaking work bringing new insights into the analysis of financial markets bob received the nobel prize in economic sciences in 2013 alongside eugene farmer and lars hansen he's presently the sterling professor of economics at yale university and served as president of the american economic association in 2016. so with no further ado let me pass the floor to professor schiller thank you charlie i am i'm playing here to talk about uh uh some of the underpinnings of economic thought and an idea that we have missed the uh insights that can be offered to us by reading about epidemiology i wrote my book narrative economics before the covid 19 epidemic was on anybody's mind it was before the first outbreak it was a surprise to me to see how relevant this epidemiology take was because what is happening with the disease is analogous to what i think happens with ideas this is not the idea that we can think of ideas as spreading by contagion is hardly new uh for example gustave labonde in his 1895 book the crowd which talked about crowd psychology talked about idea microbes okay richard dawkins later talked about what he called memes which are ideas that spread like like diseases well these people have had a lot of impact on our thinking but less so in economics and even less than that in finance so i my book and my talk today will be about uh trying to really appreciate the importance of uh of contagious narratives in explaining events explaining changes in the economy uh and in some sense it's obvious that this is uh that there's a factor how could it not be but in another sense i i relish the opportunity to to to point out how many changed narratives are plausibly involved in economic events that economists often talk about in no other terms than the actions of the central bank and the monetary or the fiscal authority so here's an outline of uh i have to get to my um share my presentation here um so uh this takes me a second here and i have a pointer which you should be able to see okay so there's really three parts to my talk first there's some general uh introduction uh second i want to talk about narratives uh that were uh important for the boom that uh economic rule that was uh substantially worldwide but also especially in the united states uh just before uh provide 19 and then talk about uh what narratives have changed significantly uh since 12 19. and this is a very preliminary because we've only had a few months under under cover 19. but it may repeat the unders the basic theme is that we we shouldn't be looking at economic fluctuations only in terms of data changes that we already have we need to look at new data we must start understanding how ordinary people not economists change because they make most of the economic decisions that cause things to happen uh and that the uh this thinking is spread by changes in stories uh people like human interest stories it's an instinct it's true in all human societies that they tell stories that involve people that have morals or lessons those are called narratives stories with morals or lessons attached to them they might be witty they might be fictional they might be fake news all those things are possibilities but they all go into the human brain and are processed leading to emotions and ideas about what should be done now i think we are at this turning point in history a turning point much like the turning point that we saw around the time of the great depression when we first got gdp data and unemployment data on a regular basis and we started thinking in terms of modeling those time series but the new data source we have now is our ability to search with search engines over digitized text so we can look at newspapers magazines legal briefs corporate reports even personal diaries and church sermons to uh find out what people were thinking uh so covet 19 is a sub-topic of my talk as probably as an illustration but also partly because i believe it interacts with popular economic narratives okay so let me start with the first part here oh i should i have a disclosure uh at the beginning i i have a disclosure link but uh the biggest the thing i'm involved with that might be a conflict of interest is i am a consultant to barclays bank right here in london for you on investment products i also gave a similar talk in 2017 called narrative economics when i was president just after i was president of the american economic association and i gave a talk at the lse on on that book i'm not gonna i'm gonna try not to duplicate anything and i have a lot of stuff to say about this so it will be a different talk the talk a year ago is online on facebook and then there's my book um all right so i'm going to start with uh covet 19. uh this is a a plot of uh the number of cases per day uh uh of covid 19 in the united kingdom uh it starts in early march and it has a hump shape uh and it has what looks like a second wave coming up at the end this is this curve is often called the epidemic curve uh we also have here a a deaths curve uh which shows covid19 deaths in the uk i'm not trying to uh be of dismo for you i picked the uk because you're mostly in the uk i believe uh you see here that uh it also is hump-shaped uh it's also the scale is lower because of of course there are fewer deaths than there are cases but this is also called the epidemic curve we're trying to flatten the curve that means push it down and maybe delay uh so that we'll develop a vaccine and and a cure before you end up in the hospital um uh so but what what i want to say is that my first intro was looking at these epidemic curves years ago my intro to this topic and thinking you know i've seen similar curves in economic variables is it possible that they're the same origin that there's something similar you know i can't remember ever inviting a member of our school of public health at yale here to a a seminar in our economics department but maybe we're similar disciplines you know uh epidemiology and economics that's the thought i haven't proven anything yet or maybe i will not prove anything it's an appeal to your inductive reasoning so here the blue line on this chart is a gross domestic product per capita in real terms in the united states and it's plotted on a large scale the vertical scale is logged so that equal percentage changes look equally big so that's gdp it was it was monthly back to 1948 and then it's annual before that and then underneath it in the orange line i have consumption that portion of gdp that goes into personal consumption you know food beverages entertainment etc so what stands out to me first about this is that uh there's a lot of little wiggles that look like epidemic curves now i know this is a bit of a leap but i think that these various events might plausibly be attributed to epidemics uh of of ideas and even possibly diseases uh but i i'm not going to push on that um by the way uh here we are right to this this shows i apologize for just showing mostly u.s data here in this talk uh i can't redo and everything in terms of the uk but i think it would be similar if you looked at different countries uh uh gdp has a certain pattern that that is uh similar across countries so what what do we see here we see uh there are a couple of big events this is 1929 and then this is the great depression and you can see that's the biggest drop we've ever had by a long shot and then over here we have a big drop uh it's not quite great depression yet but it has people worrying about that we see the slow expansion we you know we had a this is the great recession here in 2007 through nine it was worldwide but i'm just showing u.s you can see that gdp capital went down and it's been growing okay but it's kind of slow it's not like a typical recovery and this is the longest expansion in history you can see that well there's some that are close like that one uh i i think no or this here is world war ii you can see our gdp and consumption went in opposite directions not surprisingly i think we can very well conclude that this gdp here jump was due to a narrative and it was a skilled narrator by the name of adolf hitler who was the most exquisitely uh amusing statement of an idea uh that went viral in some countries uh and became a panic situation in other countries uh so if that is if that is do it really is there's nothing physical that caused world war ii it was a narrative about you know the third reich and the uh laban's ground and things like that so why not this one why isn't the great depression also it's big why isn't that why isn't that related to narratives you don't hear that very much so that's where i'm going by the way when i look at that chart let me just i'm going to plug a book by one of your professors richard laird but let me just say when i when i look at these wiggles it seems like only the big events matter it's the great depression it's world war ii and it's right now okay the the cova 19 depression that's not what they call it these other wiggles are kind of small you know i mean they're up and down like three percent from the trend uh so you know i i think that maybe we're economists are barking up the wrong tree and worrying about those little wiggles uh it's more about uh something else that uh i and that would be according to layered uh happiness uh i'll i'll leave that this is his book not mine but i'm gonna move on from there so uh this is the real stock prices in the united states uh s p composite index from 1871 to the present that was in my book uh actually it was even i've been publishing this data for a long time and this is the underlying earning in green for the series but there's a lot of wiggles up and down but if you look at the long path of earnings it looks pretty trendy and stable so i'm inclined to think that all those wiggles were driven by something other than news about earnings what was that that's a key point here which we'll try to answer this is home prices uh in the united states it's an index that i created uh involves the standard and poor case-shiller home price index uh it's nationwide and you can see that home prices uh are show a lot of volatility and so what's going on here what drove this that you know that there's a name for this boom it's called the baby boom it's the post-world war ii boom it goes way back to the narrative i would say adolf hitler calls this maybe that's an oversimplification but it was a relief from the end of the war and it was the story that people were living you can see that the price is more volatile than the rent the rent series only starts in 1980. so it's not like demand for housing is driving this it's something else so i wanted to just very quickly present it's just a couple of slides here a mathematical model this i had in my lecture a year ago that the epidemiologists uh use this is called the sir model uh and it the model is s is succept the percent of the population is susceptible i is a percent of the population infected and r is a percentage of percentage of population who have now recovered and are immune in this model this is for disease modeling in this model it can only be used on the modeling of a disease that is never fatal you can make a simple adjustment to put fatalities in but the key equation is that the number of infectives grows because of contagion when when a susceptible meets an infected which happens with a probability related to s times i this is a contagion parameter that's new infections but there's also on the we're also losing infections because people recover that's the recovery rate times the numb percent infected so an epidemic grows when the contagion is higher than the recovery which happens for a while and then it gets exhausted so this is the uh the kermit 1927 model with these parameters which roughly represent covid19 and you can see the black line is the epidemic curve for cases of no not for cases uh it's the number infected and the the the red line is the number of new cases the orange line is the number of new cases uh so the epidemic curve falls out right the the dotted line is a fraction of the population susceptible and not everyone catches it the dashed line is the percent uh who caught it and are now immune it differs from kovid19 in various ways first of all the contagion rate is not constant in povid19 because policies are intervening uh secondly we've come nowhere close to this is called herd immunity when there are no more new uh our cases so i just wanted to give a quick example of an epidemic curve of an idea or a narrative so this is i just did a search uh on um uh uh proquest news and newspapers uh for english language newspapers that use the uh no i'm sorry this is this is google engrams this is books not newspaper i'm sorry the the books uh are uh it's the percent it's the percent of engrams or words in books that are uh represented by the the pair fair wage so you can see that the word fairway nobody talked about almost nobody something happened here uh in 1830s but it was an idea that grew through time for decades and peaked you know when the great depression exactly in the grave there was a time when people were really bent out of shape about unfairness and then it collapsed the red line is another narrative epidemic that came in with margaret thatcher and ronald reagan and sort of this is market wage and so the market wage wasn't even talked about it's impersonal so labor unions went through the same movement now labor economists will talk about labor movements and that's an epidemic model already why do we have a movement why does it take place over decades the labor movement started around 1880 it grew until the great depression and then it came down well this is just a question from one of my surveys i did this in 1997 asking what people think about in 1997 and compared ordinary people with economists so i asked them what what what will happen when there's inflation and to your wage and they have these four choices one is extra profits for my employers two is my employer will be forced to raise my wage too because i you know he has to raise me to the market wage uh three that my uh employer will be is a fair and honest person and will raise my wage because it's proper there's a huge difference on highlight between ordinary civilians and economists on answers to two economists believe in those market forces but these these individuals were in the middle of or in the late stages of the fairness epidemic fair wage epidemic and they thought it's really uh it's not about market force so they don't think in terms of they think in terms of fairness at least at that time in history so um so narratives before i have to make sure i have time for all of these narratives the big thing that i emphasize in the book is that people are have need an accounting of all the narratives that are having an impact because there are many of them at one point of time and economists don't have any systematic framework to do that so they would avoid even mentioning you know one out of 20 narratives that were all having an impact on the economy and they're they're fuzzy edged phenomena and who knows but let me just talk about narratives i'm going to start with pre-covet 19 but just pre when the u.s stock market was growing remarkably fast and was setting new records uh despite the slow recovery and people were wondering why so i'm breaking the world of the economy up into three four periods 2003 to seven before the great recession 2007 to 2009 the great recession 2009 to 14 the slow recovery and pessimistic but recovering start of the long expansion and then uh in 2014 the fourth period to 2020 uh when we set a record peacetime low unemployment rate in the united states so like the economy was prospering like never before so why do those things happen now economists will naturally talk about monetary policy or about fiscal policy and i'm not denying those things i'm going to talk about what else we can talk about so i have i have 10 different narratives in the for the united states during that period and the first one has to be donald j trump i assume you've heard of this man but he dominates conference it's just amazing how much he dominates conversation here he's done it better than other presidents obama got a lot of conversation because he was our first minority president that's the orange line here did pretty well in generating conversation but it's even higher with george bush who is a normal white male generated very little discussion it's the power of the narrative these peoples made their impact through narratives associated with these names as other narratives a strong economy narrative so you can see that the term strong economy was uh was virtually never used and then it goes through an epidemic curve like until around 2000 instead they tend to talk more about speculation over speculation talk about that had been growing for 40 years or more than that until it peaked around 1929 that's when the market crashed and then it's been declining ever since so stories about speculation are less prominent in at that time so now one reason why we had a sense of a strong economy is we elected a man who who exudes strength 62 percent of news stories with that that he mentioned strong economy also mentioned donald trump in to 2017-2019 so he's a strong man right uh he he boasts he looks big he thinks big uh in contrast uh another president had a different narrative bill clinton he wrote a book called putting people first and he was in a strong economy too but they didn't mention him it's like he didn't do it because he wasn't such a strong man maybe you might be disagreeing with my interpretations but the the numbers do speak that there is something happening relevant to the economy in these numbers three is fake news uh and this is google trend now what i'm searching is searches on google and fake news was used occasionally over all these years from 2004 2008 2013 but it suddenly took off in the election of uh of donald donald trump uh and they accused people are accusing each other of lying or making up stories this is a very important economic phenomenon because it's a destruction a destroyer of trust and trust there's a literature on this is important for economic success you can't do business well if you think everybody's lying a great depression there this i haven't updated it's from my book uh well not the it's talk about the great depression the great depression in the 1930s uh is the biggest story economic story of all nobody's talking about the crisis of 1907 or 1973-75 either it's the great depression because it's been embellished i would say in stories you can see what it did it's been the stories of the great depression was growing for decades and then exploded in 2007 2008 with the great front so the great in fact they call it the great recession uh after the great depression so it's definitely narrative based uh part of the uh part of the uh lessons of the great depression were supposedly about confidence people started talking much more about uh business confidence and economic and con especially consumer confidence uh the the great depression one important aspect of the story of the great depression is that people aren't spending because they're not confident and the only way where people can get confident is if they other people spend trade wars and retaliatory tariffs here i've searched this is news and newspapers i've searched for mentions of a trade war since 1800 and look at what's just happened this is in since 2000 these are decadal they used to talk about retaliatory tariffs but not that much we've just made trade war into a bigger thing than we've ever seen before sustainability and frugality narratives uh have had an epidemic sort of thing since 2000 uh and it's faded somewhat uh permitting other narratives to move into center stage this is greta tinberg remember her at the age of 16 she sailed across the atlantic ocean thereby thereby reducing the need for fuel fossil fuel uh so uh where did she come from she's only 16 years old in this photo um somehow uh she went viral and her story there's something that people like are impressed by her uh but i'm sure it's hard to define exactly what it is okay this is a fear of debt narratives uh that um it's again proquest news and newspapers there was a huge increase there was a decline in fear of the dangers of being in debt in uh around 2006 and then it shot up to huge levels for a while uh and then starting in in phase four of my list uh we tended just to forget about it uh and so what were they talking about back here when it was really talked about a lot so i go over to newspapers and i won't read all these but it was human interest stories about people who went bankrupt and you know with lessons we will never leverage up like that again uh the relief of knowing we're not in a bottomless hole has been great so there's these stories were were common then so it uh it it discouraged purchasing it it made for a very it's long slow recovery i think uh boomerang buyers was another thing that started to come in in 2014 people after they uh they were wiped out and lost their house was reclaimed by the lender they managed to get back in again that's the story a narrative about the recovery uh there was also a new normal narrative that we will be in a recession almost indefinitely this one was growing from at the time it from the time of the normal of the great recession until uh i guess this thing stops around 2018. real estate boomed and real estate bubbles we started talking about real estate bubbles in the 1990s before that there was hardly any talk about real estate bubbles they talked about real estate booms more than they talked about real estate bubbles uh so um i i i try to figure out what's the difference between a real estate boom and a real estate bubble so i go back and i search old newspapers or old books i found this nice little discussion about the difference between a bubble and a boom uh from 1887. now it's written in the con it's written in 1915 but he's remembering the unforgettable real estate bubble of 1887. do you remember that one it was in the united states centered on los angeles i back then everybody knew about the great real estate bubble of 1887. they usually call it a boom though when i wrote an article for the los angeles times i was thinking of offering to write about the bubble of 1887 but i asked the editor of course everybody in los angeles knows about that right he said i've never heard of it i said i read it in your newspaper in 1887. there was a huge boom in bust in southern california uh and it but he he argues that uh boom is more reckless and uh masculine and uh bubble is more feminine i don't know he's writing in 1915. it's a distinction they we didn't want to say bubble until somehow just recently artificial and artificial intelligence narratives this is something that was exploding before this recent crisis uh it's all it tends often to be encouraging fear of your job being replaced by a computer but there have been other swings they're separate waves the the first epidemic was in the late 1950s uh that's when computers were moving into the office place and we see other waves what explains these uh attention differential attention to uh and what is is this a more dangerous form than automation i think it sounds more all-encompassing artificial intelligence and i think that these narratives might take off again well they're taking off as of my latest data here so now i want to come around to covid19 this has emerged as the number one topic uh and it's the whole world so it now you could blame it physically on the disease but i i think that there is also a narrative component to it that that affects how we uh react to the disease and it's different in different countries in the united states for example maybe in the uk too i don't know there's resistance to wearing face masks as effeminate or something like that as our president who made us very good at political judgment president trump has been reappearing now without a face mask even after all of this uh so it's become a political statement so i'm going to divide this into four periods this will be my conclusion uh let's talk about now i'm going to switch to monthly data instead of annual uh and i'm only going to look at 2020. so we have pre-crisis that's january of 2020. i date the crisis as beginning on january 30 2020 when the world health or association uh called it a public health emergency of international concern um and then the covid the the stock market continued to grow even after even after they said that from january 30 to february 19 uh practically a month about 20 days uh then c is the crash c for crash remember that february 19th to march 23. so it's a two month whole two month almost two month long major drop in the stock market and then there's the v-shaped recovery that's d so if i just go ahead here this shows the standard and poor 500 index in the different phases this is a before the epidemic was even risk mentioned as a risk factor the stock market was kind of flat uh then once they announced it as an emergency it was going up uh until february 19th then there was this big drop in the market uh to march 23. uh march 23 was the date when the fed announced a very federal reserve announced a very uh expansionary monetary policy and this is the path ever since setting new record highs and not in the very latest week last week but uh okay i'm just going to go through the uh these are the narratives i've already talked about here are the narratives uh for right now uh in 2020 and these should be very familiar with you now even though my i have an american perspective i know i read the guardian regularly i know that this is similar to what's going on in britain and in europe so um coronavirus 370 000 hits in one year those are 000 different news stories that mention the coronavirus so a they did start talking about it in january before the who announcement but not very much b this is the period uh when it was increasing up even after they weren't talking about coronavirus that much it suddenly leapt into attention in uh in the c which was the crash uh component and then uh this is uh d i'm not sure i got my letters lined up exactly right um here's a google not a google trends uh it shows searches on google you can see that it was in somewhere around march of 2020 that people were searching for coronavirus they didn't know what it meant you know there were news stories in january but most people didn't even read them something about china the other side of the world some people are getting sick they just didn't register so what we see is a movement of attention toward pandemics which had already people already knew what they were and they needed to be reminded what what what is this one um this is a pandemic again a and b the reason the market kept going up in b uh uh after the the who announced it january 30th uh is because people still didn't they still didn't register it wasn't real yet it suddenly became real uh in march uh and april and now it's fading it's you know i i don't know what to make of that it's like a post-epidemic peak there are human interest stories during phase c uh when the market was dropping rapidly so i i was particularly struck by this one uh this young man is western who wrote the article uh and this is in the wall street journal and these are some he was visiting a girlfriend in china uh and these are the locals uh they're they're hunting for worms to eat worms and minerals okay great story in a local creek oh donald trump uh registers there he only has 155 000 hits so coronavirus is the superstar of our narratives today but donald trump is hanging in there very strong uh not declining much at all uh he's hanging in there because of his genius at renewing his contagion by constantly coming up with new our gossip and staying within the bounds that he doesn't offend people they're they're well you know what i'm talking about i think global warming so this is uh this is uh greta tunberg again uh in january there was a lot more talk of global warming than there is since uh so it it it seems to be the stage is being pulled away from global warming and with most recent data even with the california wildfires uh which are uh to some people extremely alarming if you're in california you'll know it uh and it's talked about a great deal but um overall it hasn't we're too preoccupied with kobit 19. i did a search on poor greta tunberg i think she's a very promising young woman but she's turned 17 now she's no longer so young not quite as good as story but her decline since january this is january this is february this is march it's quite precipitous i think she can recover she can make a second wave but she has to reinvent herself uh it just somehow is no longer a contagious story there's greta on on board uh her chance that was a pretty daring stunt wasn't it she had help you can see i guess those are her helpers she didn't sail alone across the atlantic ocean but it was a good story they had a thunderstorm and lightning was striking all around them and uh her father uh remarked that they were more than a little scared out there this is oh now the american dream you probably don't hear about this so much in the uk but it's an idea that america is a special place where uh honest enterprise is rewarded uh and it hasn't really changed it i i should have uh but i should have shown the whole thing but uh american dream has been a narrative that's patriotically strong in the u.s uh that has been growing since i was first the term was first coined in 1931 and it's been an epidemic of long-term status i think it's something that donald trump hooks on to so to understand the high level of the u.s stock market has the highest price earnings ratio in the world at least my price earnings ratio cape uh is the highest in the world um it has something to do with this uh thought that there's something especially com up people are come to america because of the land of opportunity ambitious people and uh trump hasn't keyed into that but i don't see any real uh trend uh to that uh there's the american dream oh yeah this is what i meant to say uh this it started in 1931. and it's been growing as a source of pride and patriotic sentiment a little downturn but uh not significant uh and i think it helps explain these high stock market at this time it doesn't make any sense you understand it just goes to uh interpret donald trump is is like a tough businessman he's running the country like a businessman uh and uh it just sounds it just draws attention to maybe these right even if you hate the guy you might choose to invest in america uh american greatness that that one is uh that's also just for 2020. um but it's talked about but not not hugely so the great depression uh is another story that i think is i mentioned before it peaked uh in this is january february march in april and may at the beginning of the recovery at that time people were starting talking about v-shaped recovery they were talking about the great depression but they were also thinking of the recovery afterwards this is a new york times article on the left that was published on the day of on the morning of the day of the worst stock market drop in world history october 19 1987 and they show the great depression drop in the stock market uh below and they compare it with the uh the market in 1987. and they see it's starting to drop this is a narrative that we're repeating great depression again uh in 2007 we were reacting no now this is just a few uh a couple weeks ago uh a similar comparison was made not to the great depression but to the to the 1987 uh i'm sorry 27 2007 to 2009 crisis uh so people always think back to something that they can remember great depression is in their mind the other thing that's in their mind this is the other narrative is the stock market decline of a dozen years ago also quantitative easing and similar terms have taken a big jump recently this is uh march of uh this year at right at the time that the market started its turn upward uh and it's associated with human interest all three of these people are these are from left to right jerome powell janet yellen and ben bernanke fed chairman who have the most boring looking of jobs but somehow they've been lionized in the american dream as important human interest figures the v-shaped recovery started to come up this year again that's january february march april right after the drop in the stock market and the recovery of imaging information about great depression we saw a v-shaped recovery it's not a common term i researched it way back it wasn't used by anybody that i could find until the 1950s and then it was rare now it's become a much more prominent i think i'm just about done here this is my last slide actually um now i'm a little disorganized and looking at all these narratives but i don't have a theoretical framework to organize them or some sort of pattern of mutation and contagion but i think that we should see more attention uh to to narratives in the future given especially that we have so many better databases and we could use things like focus groups uh to to uh also is an independent of that method to start to uh uh find out what the narratives and morals are on our what narratives are out there currently a focus group is where an experimenter who's good at managing these groups uh takes a small group of people and asks them to discuss topics that he or she gives them and put similar people together and they they're emboldened to reveal what they really think uh and you try different groups and break down the population uh into different subgroups and say what's motivating them and what's that this is used primari especially by marketing it's also used in sociology um and we want to also integrate narratives into the existing models this is just i had a similar chart a year ago when i spoke about narrative economics but this is the percent of articles in the jstor database that mentioned the word focus group and you can see it's sociology uh two percent of their articles have focus group in them uh and then uh anthropology psychology and anthropology uh again the black i'm sorry again from last year the black bars show all years uh and the great bars are just the most recent decade and you can see that every discipline is referring more to focus groups every discipline shown and economics and finance are also but they're relatively meager history drops down because they can't do focused group groups in history so they can't they would love to do focus groups in history if they could uh so i think that coming back to the i've shown here a lot of narratives that maybe they should look familiar to you but i've given you counts showing their relative importance their questionable significance sometime of what those counts really mean but i think that with a careful attention to our understanding of human nature as well as mathematical statistics we can get a better idea of what's driving economic fluctuation so i will stop thank you very much bob that was uh absolutely fascinating with a lot of food for thought uh and it's prompted a lot of uh questions that i can see um a number of the questions um home in on a sort of set of related issues uh along the lines that uh some of these narratives are basically benign uh some of the line or false downright fake news if you like some seem to matter some may be less material uh and then finally there may be a degree of reverse causation so the the narratives are responding uh or reflecting events rather than actually causing them um and you've you've sketched out um lots of narratives here but do we have a mechanism for sifting which ones are likely to be the most important and most salient uh and do you have a stories uh hypotheses the way with the way we should think about narratives emerging and then dying or being replaced uh okay those are deep questions and i apologize for not having a complete answer i'm sensing that we've got a new database and we're going to see research on that and it's something for not one person many people have to get involved in this um so reverse causation is something that rings true to uh economists uh because we're very interested in that it's become a criticism of a lot of modeling and i think that it's it's a difficult thing to deal with but not impossible we have to we have to be looking for the truth and what's really driving things uh and we may end up using some of our human judgment uh to um uh to infer that now in other in other social sciences i mentioned this last year i think they do controlled experiments now we can do controlled experiments in economics but maybe that is but i haven't seen that about causality from narratives uh so so for example uh legal scholars will put uh their um uh students into two groups an experimental group and a control group as a jury and uh and then have two different versions of the prosecution's comments uh or information one is a anemic version where everything is very polite and colorless but has all the facts and the other is a hyped version that doesn't present any different facts but just hypes it it makes colorful language it includes extraneous detail that's colorful and they find they get convictions more often with the hyped version so i believe that that's been shown that but but it's a little bit harder to do a controlled experiment on viral narratives it's a very competitive marketplace to get viral and it's something about hitting a particular chord or something so reverse causation is hard to be handled in economics i think we can do some controlled experiments to establish some things and it's not just reverse causation it's also the direction often when i refer to uh like well i can't know if i think of a good example right now but uh it may be that it's very clear that the narrative is exogenous like covid 19 is initially not it'd be caused by some transmission from bats to people or something like that which is random but we don't know which direction of a fact does it make people sick or does it make them inspired and that's an ambiguity that we face but i don't want to make the mistake of that there's a classic economist joke about an economist was searching uh under a lamp post for his keys and a pass you know this joke the passerby comes and says so did you lose your keys here and the economist says ah no i don't think so but the light is better here so uh so we don't want to make that mistake too often when i'm advocating here sounds a little bit like more of appreciation of historians we don't have historians from the history department over to our department as often so when they make assertions about history you can ask the same question how do you know uh that it's not the somehow inverse causation uh but i i bet when you read a good historian that question doesn't always come into your mind it must sometimes um it's uh it's slow progress i i think uh it involves some human judgment about reverse causation uh and um it may be uh somewhat disreputable part of economics for a long time to come i just think i like the truth i like to know what's really driving things and i think it ultimately affects policy making and forecasting as right um now i have a a couple of link questions here there's one from ted cran uh of lloyd's bank uh credit risk forecasting and stress testing uh who's interested uh in understanding what technologies researchers are using to quantitatively capture these ideas and somewhat linked to that chandler uh wilson um who's the head of a data science innovation at a large global bank wonders why firms are being so slow to move into this sort of space to use these ideas uh okay as for the technology of inferring that's a big subject matter and uh it's not something i can anticipate entirely but i wanted to mention that maybe i should just talk a little bit about focus groups which is a technology there was a famous article uh by robert k merton who is actually the father of the economist robert merton in the 1940s with a co-author called focus interviews uh and there is a sort of technology outlined there for conducting focus and he he imagined to be one on one rather than a group it's now typically more a group i think but there's something about um uh listening attentively listening for what ideas are brought up and following up i mean ideas that you didn't expect would be coming to mind when you bring up a topic but i think that there is something of a skill that some people have to run focus groups and to get people to open their hearts and tell them how they really think and um as for why firms are slow to move into narrative uh economics well they maybe they are not uh in some dimensions at least uh i'm thinking uh in terms of what they learn at the business school in terms of marketing we have a marketing department um so uh the advertisements that they show on television if you'll notice tend to be advertisements in the form of a small skit often humorous amusing attention-grabbing involving real people like you or me so if they're advertising medicine you would think that rational response theory would suggest put the best scientists up and the scientists will show graphs and tables about this medicine they don't do that that's that's not how people think what they do is they show somebody just like you they've got your demographics uh who's saying you know i took this medicine and i feel great and then they show his admiring grandchildren coming up to hug and kiss them and they play soft music they've done experiments on all these things like music do you think they put music in for entertainment well it's entertainment but with a motive it's been shown that ads are more effective if they have soft pleasant music playing in the background so the other department that comes to my mind teaching business skills is the journalism department and they will i'm sure they always will tell you you've got to learn not to present too many statistics and things like or charts in your news stories unless you can develop a human interest story around them so you know it's not like business businesses are uh using a narrative theory uh already uh and let's hope they're doing it in an ethical way you can manipulate i have another book with george akerloff called fishing for fools the economics of manipulation and deception and maybe we were a little critical of the business world but not always they often have a good heart and are are just reflecting the reality of the situation that you've got to get people's attention somehow and it's a very competitive world um so the other question by is ted kran you said yeah uh i i guess i've yeah i think i've answered as well as i can i need both of those questions right okay and i guess because of the time this question needs to be the the last one this is from uh azal hussain who's a phd student here at lse economics would you agree that the rise of identity politics around the world primarily feeds off some kind of narrative uh yes it's a resurgence of identity policy we had i mentioned world war ii identity politics played a big we had benito mussolini and other people who were um uh people identify with that means they think that they are the same person almost that they feel fundamental loyalty uh to a person so um yeah this is definitely something that's happening at this point in history uh i i'm not i'm not a political scientist uh and i'm sure they have many more insights than i can offer but i'm thinking that there are um there are uh examples of i think the the post-world war ii distrust of charismatic figures is fading uh just with forgetting about uh these people um i i've told my students watch a mussolini speech or a hitler speech with english translations you can find them on the web just so you have a sense of what caused that war and then i thought maybe i shouldn't urge anyone to watch one of their speeches he might like it too much um but that's identical so i think that there have been recent examples in in history uh of uh people who were well who are uh um defining a new form of identity i i keep mentioning our own uh president donald trump i'm avoiding your prime minister i don't want to be offensive as a foreigner although i actually admire both of those men they're both geniuses at some at some level and [Music] it's not the average person who makes it to that lofty level but you know we see we see people who are copying other successful people so for example jair bolsonaro in brazil the brazilians call him the brazilian trump uh and he does a lot of things that are suspiciously similar uh so it's like there are cultural similarities around around the world uh because we communicate so they're all on tick-tock all of our teenagers are on tick tock and they're they're sharing experiences with people in any country and so there is something about identity politics that's that is growing right now uh and i can't uh i can't be more eloquent than that about it okay well thank you very much bob that's been a really fascinating uh discussion picking up on uh your book uh which is now available uh in paperback for those who haven't read it before in hardback uh but um there's some interesting themes there that you develop in the uh the context of the the current pandemic uh that we're all living through uh so can i say thank you again uh from lse for participating uh and thank you also to everyone who tuned in to listen goodbye my pleasure

Channel: LSE

Views: 5,466

Rating: 4.9740262 out of 5

Keywords: Narrative Economics, Robert Shiller, LSE Robert Shiller, LSE Online Events, LSE Events, COVID-19, Shaping the post-COVID world

Id: K4Iwppk2MH4

Length: 65min 32sec (3932 seconds)

Published: Tue Sep 15 2020