Robert Shiller on psychology and economy

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Robert Shiller on psychology and economy

21 May 2009

Speakers: Robert Shiller

Robert Shiller explains the main themes covered in his and George Akerlof’s book Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism (2009), and explains their thoughts on modern economics.

Shiller begins by explaining how we arrived at the current state of economic understanding, discussing how John Maynard Keynes’ 1936 book The General Theory of Employment, Interest, and Money introduced the concept of human irrationality to the discipline of economics, and the ‘efficient market revolution’ of the 1960s and ‘70s. Whilst economists such as Steven Levitt and Stephen Dubner (co-authors of 2005’s Freakonomics) argue that human behaviour is rational, Shiller and Akerlof favour an economic theory based on Keynes’ work - one that allows for illogical and irrational behaviour.

Shiller outlines the 5 main ideas covered in Animal Spirits: that confidence in economic markets changes; that fairness – our aversion to being slighted – plays a part in human economic behaviour, that we are more susceptible to corruption in boom periods; that people are confused by inflation and deflation; and that the latest research from psychologists and neuroscientists suggests that the human mind is based around narratives, which become the driving force for the economy.