MIB: Talking Ourselves into Trouble – Shiller on Economic Narratives

Can we talk ourselves into a stock market bubble? A recession? Why would the story of an economic theory drawn on a napkin have so much more resonance than all the reams of research that have debunked it?

How narratives impact markets and economies is the discussion for our Masters in Business interview with Nobel Laureate Robert Shiller. The Yale University professor of economics latest book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events,” delves into why some stories go viral and others do not.

Shiller is perhaps best known for the numerous market and economic measures he created that have become widely adopted, including the CAPE ratio, and the Case-Shiller Housing Index. His 1981 paper, “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” was an early exploration of behavioral finance, challenging the concept that markets are perfectly efficient and individuals are driven by rationality. He has been the co-organizer of NBER workshops on behavioral finance with Richard Thaler since 1991. Shiller won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2013 for his empirical analysis of asset prices. Readers can take Shiller’s course on Financial Markets (free) on Coursera.

Narrative Economics” looks at how stories we tell ourselves influence our beliefs, markets and economic events. Shiller explains how Google Trends can be used not only to predict not only influenza epidemics, but also economic changes. It is not so much that we talk ourselves into a recession, as we can spot when the public’s rising economic concerns are identifiable before a recession officially begins.

His favorite books are here; A transcript of our conversation is available here.

You can stream/download the full conversation, including the podcast extras on Apple iTunesOvercastSpotifyGoogle PodcastsBloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Binyamin Appelbaum, lead business and economics writer for the New York Times’ Editorial Board, and author of The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society.

 

 

 

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