Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism

By Cynthia L. Harter. 2009

282 citations recorded by the source corpus.

Probability theory suggests that large numbers of independent economic agents should lead to greater macroeconomic stability. The likelihood that economic outcomes would deviate from their true central tendencies should decrease as the number of economic decisionmakers increases. The United States and many other economies have many millions of such decisionmakers. So why do large economic business cycles occur? Many economists have offered answers to this question. Perhaps market actors alternately face good and poor economic choices because of external macroeconomic shocks; perhaps their decisions and interactions are dominated by herd behavior; and perhaps their actions are sometimes driven by nonrational motives that steer them far from normal levels. During the Great Depression of the 1930s, J. M. Keynes dubbed the last of these explanations “animal spirits.” The book by professors Akerlof and Shiller is an attempt to dissect that term and expose its core content and meaning. The subject of “animal spirits” lies at the heart of macroeconomics. With a recession underway as backdrop, the book’s discussion about the roles of market institutions and governments is highly topical. And the authors are renowned economists, particularly in the subfields of labor and financial markets. Both are credited with a deep understanding of economic history, the history of economic

Subfields: Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/59b835e2e537eb178c4730d88bea23ecdf9a1400

Citations in the corpus

• Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007-09 (2010, unknown): “Mis-pricing of risk: The “false” belief in the Great Moderation and the “animal spirits”: Akerlof and Shiller (2009) present perhaps the most authoritative endorsement of the view that there were strong psychological forces that led to the current financial crisis.”
• Monetary Policy and Bank Risk-Taking: Evidence from the Corporate Loan Market (2017, unknown): “Akerlof and Shiller (2009), on the other hand, suggest that investors take higher risks to increase returns in periods of low interest rates due to money illusion.”
• The Principle of the Malevolent Hiding Hand; or, the Planning Fallacy Writ Large (2015, unknown): “Economists have recently begun discussing the idea of “firing the forecaster” when forecasts are very wrong and the consequences severe (Akerlof and Shiller 2009, 146).”
• Systemic Risks in Society and Economics (2010, unknown): “For example, when the strategies of companies all over the world become more and more similar (due to “group think” [113] or asking the same consultancy companies), a lack of variety (heterogeneity) results in the system.”
• Who Benefits from Economic Freedom? Unraveling the Effect of Economic Freedom on Subjective Well-Being (2013, unknown): “Globalization critics, as well as some economists (e.g., Akerlof & Shiller, 2010; Klein, 2007; Streeten, 1979), have argued that the growth enhancing effect of EF comes at the price of lower life satisfaction.”
• Forecasting US Recessions: The Role of Sentiment (2014, unknown): “However, it would be possible to attribute the presence of recession predictability using sentiment variables either to animal spirits (Keynes (1936) and Akerlof and Shiller (2009)) or agents rationally and intelligently processing fundamental news. Barsky and Sims (2012) examine these two interpret”
• Bank Risk-Taking, Securitization, Supervision and Low Interest Rates: Evidence from the Euro Area and the U.S. Lending Standards (2010, unknown): “Second, there could be monetary illusion associated to low levels of interest rates, thus inducing higher risktaking to boost returns (Shiller, 2000; and Akerlof and Shiller 2009).”
• Striving for balance in economics : towards a theory of the social determination of behavior (2016, unknown): “See Akerlof and Shiller (2009). 49 See, e.g., Gentzkow and Shapiro (2011). Fricker (2007) coins the term “epistemic injustice” for the discounting of the credibility of an individual by virtue of his membership in a race or other group whose membership is fixed by his ascriptive characteristics.”
• Macroeconomic Policy in DSGE and Agent-Based Models (2012, unknown): “Assuming agents behaving according to what suggested by the psychological and sociological evidence allow to build models which better account for macroeconomic phenomena (Akerlof, 2002) including the current crisis (Akerlof and Shiller, 2009).”
• Uncertainty, Risk, and the Financial Crisis of 2008 (2014, unknown): “Akerlof and Shiller 2009, 144.”
• FINANCIAL BUBBLE IMPLOSION AND REVERSE REGRESSION (2017, unknown): “Akerlof and Shiller (2009), for instance, advance a behavioralistic description of how psychological forces such as confidence, fear and greed can drive financial and real estate markets into regions where market prices are no longer supported by fundamentals.”