Nobelist Robert Shiller’s New Approach to Economics: The “Economic Narrative.”

My graduate research early in the 1980s was focused on narratives. By that time education had begun to realize that teaching just facts or principles without embedding them in stories was a poor way of teaching. The primary reason for that wasn’t fully understood until neuroscience got in the business of figuring out how memory and understanding work. The result of a lot of research was that memory is based on stories that we put into our gray matter, not on principles or facts. Sounds dumbly obvious today, but it wasn’t obvious until fairly recent.

I studied narrative and brief stories from the standpoint of their actual form and then the underlying values that caused people to buy into the story. What made most sense to me was that stories primarily take the form of tragedy, comedy or fairy tale. Tragedy and comedy are two very different ways of attacking human experience. And fairy tale is something else!

Tragedy is about destiny and fate. I just finished watching the four seasons of The Bureau, a French series on espionage. The final ending was a tragedy, where the leading character experienced the fate of death (Don’t let that keep you from watching the series. It’s just fascinating.) I responded as an American and didn’t like that ending, even though it made perfect sense. The French and especially the Greeks love tragedy. The Greeks always look first for tragedy and I suspect that’s part of the reason their economy is in the shitter. We Americans much prefer comedy—not “funny ha-ha,” but someone succeeding as a result of their wit, wisdom and strength, like all the John Wayne stories of the past (that really dates me!) But Americans really, really love fairy tale—someone coming to the rescue, like the cavalry rescuing the settlers from the Indians (that’s not politically correct, but we still like these stories in different contexts. Today, they often take the shape of mysteries with an especially sharp detective, who’s often a female!) Social psych has found that American optimism—related, I’m sure to our beliefs in priorities of comedy and fairy tale are part of the rationale for our national success.

So, what does narrative have to do with business and economics?
I learned just a few years into business consulting that the stories people told revealed as much about their firm as direct questioning...

3M, for example, has tons of comic stories, starting with the story of one of their inventors figuring out the post-it-note from needing page markers when he was singing in his church choir. I also heard a few fairy tales that made the success of their business possible. But I also noticed, early on, that there were no tragedies being told. I decided as a result of the stories that this business was going to always succeed. And my insights about tragedy, comedy and fairy tale rang true. To clarify my model even further, I worked in a couple small firms that kept telling tragedies. Lo and behold, those firms went under. I worked with a start-up that had a lot of comedy and fairy tale from the beginning. They wanted to pay me in stock, not cash. I thought about it for 10 seconds and agreed, immediately. And eight or nine years down the pike, I made out like gangbusters, laughing all the way to the bank and cashing in that stock. [Note that you always get comedy from Mark Zuckerberg, along with a fair amount of strategic deception—but rarely fairy tale and never tragedy!]

The Nobel Prize winning economist, Robert Shiller, has put narratives (stories) still more front and center.
Schiller defines narrative economics as the study of popular stories that are economically relevant, that have a moral, that are a lesson that people will take heed of in their economic decisions (Time, Nov. 4, p.104). He believes that narratives can “shape the economy, even causing a recession.” My studies support his conclusion.

One of the really important points Shiller makes is that though many economists understand narratives, they aren’t perceived as strong enough to rely on for economic decision making. In contrast, Schiller understands that narratives have the power to bring about a recession. And that, he rightly comments, impacts the actions of consumers.

He also understands that patriotic narratives impact economic decisions. And that angry narratives are often contagious. As a result of extensive research by Roy Baumeister, I’d also point out that the bad is inevitably more powerful than good narratives. Thus, angry, negative narratives—whether true or not—have exceptional power. And take a lot of narrative refuting if an organization or an individual is going to be successful in their persuasion efforts. Furthermore, my research revealed that for a narrative to work, it has to connect with deep-seated cultural values, values that may or may not be conscious.

Another issue that Shiller surfaces is the power of numerous, supportive narratives. Recognizing that the talk about recession (multiple narratives) is building up, he suspects that recession is well on the way. In our studies of campaign rhetoric, we recognize that multiple supporting narratives, say for a recession, or for a trade war, function over time as a single narrative with a beginning, middle and ending and can exert significant power.

Overall, one of the really important issues that Shiller has brought to the fore is the role of public narratives. For the astute listener, they provide as good a clue to what’s going on locally or nationally as economic or financial statistics.

See also:
Intelligence is all about stories. Not just IQ or EQ: https://danerwin.typepad.com/my_weblog/2016/05/what-is-intelligence.html

Career Change with a Superb Story Line: https://danerwin.typepad.com/my_weblog/2009/04/career-change-with-a-superb-story-line.html

Quotation of the Week: Jane Goodall: https://danerwin.typepad.com/my_weblog/communication-skills/page/12/