Published by EH.Net (April 2020)

Robert J. Shiller, Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Princeton: Princeton University Press, 2019. xix + 377 pp. $28 (hardcover). ISBN: 978-0-691-18229-2.

Reviewed for EH.Net by Andrew Jalil, Department of Economics, Occidental College.


Economics is increasingly a data-driven field, with its emphasis on clever statistical techniques to demonstrate causal identification. Yet, Robert Shiller’s Narrative Economics reminds us that narratives, i.e. stories that offer an explanation or justification, play a powerful role in shaping economic events. Shiller argues that economists should integrate narratives into their models and theories of human behavior, making the case, via historical examples and research from other fields, that our brains are hardwired to respond to stories. He presents an extensive list of popular narratives that have affected economic attitudes, behaviors, and outcomes through history. He shows that narratives tend to recur, albeit with mutations that fit each historical era. This book is a must read for economists, particularly scholars of economic history.

Shiller describes “Narrative Economics” as the study of how the narratives that people told one another influenced human behavior in ways that altered the course of economic events. Shiller does not provide new narratives, but instead focuses on how the contagious, word-to-mouth spread of a popular narrative at the time shaped economic developments. In Shiller’s view, history is “a succession of rare big events in which a story goes viral” (p. xi).

Shiller first develops the case that narratives matter by presenting research from other fields. For example, neuroscientists have found that stories with a dramatic arc lead to elevated levels of hormones, such as oxytocin and cortisol, that influence behavior. He analyzes the contagious spread of narratives using insights from epidemiology on the spread of pandemics. He highlights research from other fields utilizing controlled experiments to show the degree to which narratives affect behavior: When a treatment group receives information in the form of a narrative with vivid details and/or a protagonist, relative to a control group that receives information in a more prosaic fact-based format, study participants more strongly retain information embedded in news reports (in the field of journalism), eating habits improve via increased consumption of fruits and vegetables (health), organ donation rates soar (philanthropy), student learning outcomes improve (education), and jury decisions change (law). In each case, the outcome — an economic variable — varies dramatically based on the structure of the narrative.

Shiller then provides vivid historical details on how economic narratives have influenced the course of history. He shows how narratives drove speculative bubbles associated with the two Great Downturns of the past century: the Great Depression of the 1930s and Great Recession of 2007-09. Contagious stories about get-rich-quick schemes fueled speculation in both episodes. Narratives that connected homeownership and the American dream further fueled the housing bubble of the first decade of the twenty-first century. Shiller notes that such stories are not new; narratives about real estate, for example, have fueled speculative boom and bust cycles throughout history.

Shiller focuses on a set of perennial narratives — narratives that tend to recur, with variations that fit the historical moment. He describes how fearful narratives about new technologies resulting in permanently higher unemployment are common through history, despite being consistently wrong. (Shiller even notes worries about labor-saving technologies in Homer’s Iliad in the eighth century BC and by Aristotle in 350 BC.) Shiller compares the debate over bimetallism in the late nineteenth century to discussions about cryptocurrencies, such as Bitcoin, today, noting substantial similarities. Other perennial narratives Shiller examines in depth are stories that (unfairly) vilify corporations and organized labor.

Shiller’s book persuasively makes the case that narratives play a powerful role in shaping human behavior, and in doing so, drive many of history’s major economic events. The book will leave readers convinced that narratives influence many aspects of human behavior, in ways that scholars are only starting to understand. Shiller traces many important political, economic, and social changes to narratives. The book is an excellent resource for academic economists seeking to understand the world through a different lens.

Shiller’s argument on the importance of narratives also relates to the narrative research approach of macroeconomic historians — a research approach that uses narrative evidence, i.e. non-statistical evidence in a more qualitative form, to address issues of causality and unearth new historical evidence. Shiller cites the work of Milton Friedman and Anna Schwartz, pioneers of this approach. Ascertaining causality is difficult in all fields of economics, perhaps particularly so in macroeconomics — yet, Friedman and Schwartz made substantial progress. They examined narratives, such as those embedded in the diaries of Federal Reserve officials and other government documents, to isolate relatively exogenous monetary policy shocks. Many scholars have since used the historical narrative approach to study the effects of macroeconomic policies and the causes of recessions, depressions, and recoveries. The study of stories, via the historical narrative research approach, has increased the knowledge frontier of economics in a way that reinforces the central message of Shiller’s book on the importance of narratives.

In his book, Shiller issues a call to economists to integrate the contagion of narratives into economic theory and borrow insights from other fields, such as anthropology, journalism, psychology, and sociology, that systematically incorporate the study of narratives into their research methods. Shiller argues that careful assessments of what contemporaries (e.g. businesspeople, newspaper writers) thought at the time may help economists better understand the past and improve their forecasts by incorporating a different type of evidence not present in statistical time series. In sum, he argues that economists should more strongly embrace the study of narratives. Though he does not acknowledge this credential in his book, Shiller was one of the few economists to accurately predict the disastrous effects of the collapse of the housing bubble in the mid 2000s. His keen sense of economic history and the role that narratives play in driving booms and busts made him particularly well suited to diagnose the impending housing and financial crisis in real time. Shiller’s book convincingly makes the case that insights from narrative economics have the potential to improve policymaking, forecasting, and the economics discipline itself. As Shiller argues, “Economists can best advance their science by developing and incorporating into it the art of narrative economics … bringing science and art together into a more robust economics” (p. xv). Robert Shiller has accomplished such a feat in this superb work. An engaging read for a general audience and a must read for academic economists.


Andrew Jalil is an Associate Professor of Economics at Occidental College. He has used the narrative research approach to study historical U.S. banking panics (“A New History of Banking Panics in the U.S., 1825-1929,” American Economic Journal: Macroeconomics), monetary policy in the Great Depression (“Monetary Intervention Really Did Mitigate Banking Panics during the Great Depression,” Journal of Economic History), inflation expectations in the recovery from the Depression (“Inflation Expectations and Recovery in Spring 1933,” Explorations in Economic History), and historical U.S. asset price bubbles (“A New Chronology of U.S. Asset Price Bubbles, 1825-1929,” a work-in-progress).

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