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Why Economists (Don’t) Tell (True) Stories

by Shlomo Maital
 

   After decades of researching and teaching economics, I became increasingly troubled by my discipline. I did not find truth in the math and numbers economists love. Instead, in teaching managers and future entrepreneurs, I found truth in what economists largely despire – N ≤ 1, that is, stories about real people. Often, when I tried to make my seminar talks interesting and meaningful with narratives, I got the devastating criticism: Stories! A word worse than Nazi, Fascist, or pedophile, for economists.

       This is why I was so delighted to read the article by Carmine Gallo in Forbes, published way back in January. Gallo reported a speech by Nobel Economics Laureate Robert Shiller at the World Economic Forum, in Davos. Shiller is a behavioral economist who writes wonderful insightful books about how people behave. Here is an excerpt of what he said in Davos, according to Gallo.  Warning – it’s rather long, but I think worth the time.

   “This week at the World Economic Forum in Davos, Shiller banged the drum on a topic that’s near to my heart — the power of narrative to drive human behavior. Shiller didn’t mince words.   “Most people think in narratives, but economists are terrible with narrative,” he said. In a follow-up interview on CNBC, Shiller said, “Last year I chastised the [economics] profession for neglecting what you media people know. Narratives drive human behavior.” To study narrative is to examine ourselves. We think in story, process our world through the lens of story, and use storytelling to communicate ideas. One prominent economist believes that stories are the heart of human behavior. He says to understand the power of narrative is to understand financial booms and busts — and to prevent crises from getting worse.

   Robert Shiller is a Nobel prize-winning economist at Yale. He’s written books and papers warning of bubbles in the stock and housing markets before they happened. “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,” Shiller said in his speech. “Narratives ‘go viral’ and spread far, even worldwide, with economic impact.” Shiller says that the same epidemic models that trace how disease or viruses spread can be used to describe the word-of-mouth transmission of an idea. Stories spread ideas like a contagion—infecting one person and another, and another. Some ideas, of course, are great ones and should catch on. But some stories—once they go viral—can have a damaging impact on world economies.

   Stories continue to impact our economies today. Shiller says the financial crisis of 2007-2009 also followed “a narrative-based chronology.” Financial busts are “driven by a cadence of stories.” Stock market and housing bubbles are formed when people hear stories of easy money being made. Panics make declines worse as stories of losses go viral.”

   Another narrative that Shiller and several other economists brought up in their panel at Davos is today’s prevailing storyline that humans will be replaced by machines. “

   For decades, we have heard, every 15 years or so, the story of how very soon machines will replace humans. They never have, and never will.   Economists preached the story how unbridled uncontrolled greed would make human society happy healthy and wise. It didn’t.  So – economists DO use stories, they weave stories based on numbers – and very often, distressingly often, get it wrong. But no matter—people believe the stories, and economists continue to build false ones.  

   There is hope. Modern economics is dominated, among the young, by the effort to understand and research human behavior. And this work, pioneered by, for instance, Dan Ariely, is based on great narratives built on real people and real dilemmas.  One day, mainstream economics will be as behavioral as anthropology or psychology.

   Alas. I was born too soon.