Robert J. Shiller on Narrative Economics
Jun 15, 2026
Robert J. Shiller January 2017
JEL No. E00, E03, E30, G02, N1
ABSTRACT
This address considers the epidemiology of narratives relevant to economic fluctuations. The human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact. The 1920-21 Depression, the Great Depression of the 1930s, the so-called “Great Recession” of 2007-9 and the contentious politicaleconomic situation of today, are considered as the results of the popular narratives of their respective times. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future.
Robert J. Shiller Sterling Professor of Economics and Professor of Finance Cowles Foundation, Yale University 30 Hillhouse Avenue New Haven, CT 06511 robert.shiller@yale.edu and NBER
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By narrative economics I mean the study of the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations. A recession, for example, is a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, to postpone hiring new help in an existing business, or to express support for fiscally conservative government. They might make any of these decisions in reaction to the recession itself (that’s feedback), but to understand why a recession even started, we need more than a theory of feedback. We have to consider the possibility that sometimes the dominant reason why a recession is severe is related to the prevalence and vividness of certain stories, not the purely economic feedback or multipliers that economists love to model. The field of economics should be expanded to include serious quantitative study of changing popular narratives. To my knowledge, there has been no controlled experiment to prove the importance of changing narratives in causing economic fluctuations. We cannot easily prove that any association between changing narratives and economic outcomes is not all reverse causality, from the outcomes to the narratives. But there have been true controlled experiments showing that people respond strongly to narratives, in the fields of marketing (Escalas 2007); journalism (Machill et al. 2007 ); education (McQuiggan et al. 2008); health interventions (Slater et al. 2003); and philanthropy (Weber et al. 2006).
My goal in this paper is to describe what we know about narratives and the penchant of the human mind to be engaged by them, to consider reasons to expect that narratives might well be thought of as important, largely exogenous shocks to the aggregate economy. This address extends some earlier work I have done with George Akerlof (Akerlof and Shiller, 2009, 2015) and some of my own earlier work going back decades (Shiller 1984), but develops the analysis and captures a much broader relevant literature.
Of course, almost nothing beyond spots on the sun is truly exogenous in economics, but new narratives may be regarded often as causative innovations, since each narrative originates in the mind of a single individual (or a collaboration among a few). Joel Mokyr (2016) calls such an individual a “cultural entrepreneur,” and traces the concept back to David Hume (1742) who wrote that “what depends on a few persons is, in great measure, to be ascribed to chance, or secret and unknown causes; what arises from a great number may often be accounted for by determinate and known causes.”.
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