Status
Available
Publication
Princeton : Princeton University Press, c2009.
Description
The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" are driving financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity. Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government--simply allowing markets to work won't do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life--such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes--and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them. Animal Spirits offers a road map for reversing the financial misfortunes besetting us today. Read it and learn how leaders can channel animal spirits--the powerful forces of human psychology that are afoot in the world economy today. In a new preface, they describe why our economic troubles may linger for some time--unless we are prepared to take further, decisive action.… (more)
Media reviews
There is much to criticize in modern acroeconomics. But as the NYU economist Tom Sargent tells his students, “it takes a model to beat a model”. Akerlof and Shiller’s book criticizes classical economics but does not offer a viable or coherent alternative. Instead they advocate Keynesian
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policies that were discredited in the 1970s; a massive expansion of liquidity and a massive fiscal expansion. History has taught us that a massive expansion of liquidity will lead to inflation. Show Less
In Animal Spirits, two Keynesian economists — George Akerlof, a Nobel-prizewinning economist at the University of California, Berkeley, and Robert Shiller, an economist at Yale University — use findings from psychology to amplify one of economist John Maynard Keynes's theories. In his signature
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1936 work, The General Theory of Employment, Interest and Money, Keynes explained that economies should fluctuate because people behave in unpredictable ways — under the influence of what he called "animal spirits". Show Less
the authors attempt to restore animal spirits to economic theory. They do this by drawing on the greater understanding of human psychology that exists today, and which Akerlof and Shiller, along with other economists, have incorporated into the relatively new field of behavioral economics.
Though it calls for a reworking of economic theory, Animal Spirits is not a difficult book. It is short, chatty and anecdotal. The general reader will be engaged and drawn in. But the book is serious, too. Good notes and a bibliography are a guide to the literature that the book aims to tie
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together. Animal Spirits carries its ambition lightly – but is ambitious nonetheless. Economists will see it as a kind of manifesto. Show Less
Animal Spirits is a good book to use in a senior-level, undergraduate economics course where students already have a strong background in traditional economic theory because it takes the reader beyond that level to a more realistic look at the world around us. Students would be required to extend
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their understanding of economics by incorporating elements of sychology and sociology. Interestingly, such a class might not help prepare the economics majors for a standard economics programme in graduate school, but it might help prepare them for jobs in government and public administration. Show Less
User reviews
LibraryThing member The_Hibernator
Animal Spirits is a macroeconomics book for the “popular reader.” Although I am popular, and a reader, I didn’t fully understand it. However, I got some good information out of it anyway—info that I’m sure will build a knowledge base on something I know little about. As I understand it,
If you’re looking for a book that explains behavioral economics to people who don’t understand, this is not the book for you. Since I didn’t understand it, I can’t say whether it’s any good for people who DO understand what the writers are talking about.
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the premise is that the US/world economy is driven by “animal spirits,” a force which leads people not to think rationally about money, but emotionally. Thus, sometimes the general populace will feel happy and safe about the economy and spend a lot, thus boosting the economy. And sometimes they will feel scared and unsafe, so they don’t invest or spend, promoting a recession. If you’re looking for a book that explains behavioral economics to people who don’t understand, this is not the book for you. Since I didn’t understand it, I can’t say whether it’s any good for people who DO understand what the writers are talking about.
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LibraryThing member DavidGoldsteen
I've been working in the financial industry for more than a dozen years, and over that time I've grown less confident that we really understand what drives our economy. The myth of the rational actor is disturbing. Of course, it's possible that in aggregate, the actions of myriad nonrational actors
With that in mind, I was excited to read "Animal Spirits" by Akerlof and Shiller. I'd recently read Shiller on the housing bust, and though I think he is too optimistic about using financial markets to correct for price bubbles, I think he has a good perspective.
"Animal Spirits" is more a manifesto than a fully thought-out economic model. It points the way to a more mature way of modeling behavior, taking into account feedback loops due to confidence, etc. It's only half a model at this point, though: it provides a reasonable framework for interpreting events in the past, but I'm not sure it's ready to make predictions about the future. This is the true test of a model.
The prose is good, and the economics are clear. Akerlof and Shiller are clearly writing for the average reader, who'd rather not see an equation in the middle of a casual read. They have an annoying tendency to refer to themselves individually in parenthesis, but otherwise, a nice prose style.
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may appear rational, but the fact that it's possible doesn't make it necessary. It seems to me we've constructed a house of cards on a flimsy rationalization.With that in mind, I was excited to read "Animal Spirits" by Akerlof and Shiller. I'd recently read Shiller on the housing bust, and though I think he is too optimistic about using financial markets to correct for price bubbles, I think he has a good perspective.
"Animal Spirits" is more a manifesto than a fully thought-out economic model. It points the way to a more mature way of modeling behavior, taking into account feedback loops due to confidence, etc. It's only half a model at this point, though: it provides a reasonable framework for interpreting events in the past, but I'm not sure it's ready to make predictions about the future. This is the true test of a model.
The prose is good, and the economics are clear. Akerlof and Shiller are clearly writing for the average reader, who'd rather not see an equation in the middle of a casual read. They have an annoying tendency to refer to themselves individually in parenthesis, but otherwise, a nice prose style.
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LibraryThing member Nodosaurus
This is a book on behavioral economics. The animal spirits is derived from Latin, and refers more to states of mind. Economics is driven more by perceptions and ideas about economics, sometimes irrational. The Keynesian adherence to simple profit-motivated activities can be misleading and
George Akerlof argues in support of behavioral economics over the more popular Keynesian economic theory. He pulls examples over the past 20 years or so to establish his argument over behavioral economic's superiority. He posits that people work from stories about economic behavior. These stories are patters of behavior that they expect others to follow. Through the book he uses these stories to explain unemployment, recessions, other behaviors.
The book makes good use of examples and the author does take the time to explain his theory and how it differs from Keynesian economics.
Its weakness is in the approach. Some of the "real people" examples seem odd, for instance, the real person who who is young, and fresh out of school is a female professor at Harvard. This doesn't feel like a real person and weakens the value of his example. Many of his examples, especially those from history feel either contrived or cherry-picked. In my opinion, the book would have been much stronger if he had pointed out criticisms or alternate theories and addressed them in comparison. He does provide a lot of notes, some with references, which does give it some feel of a scientific paper.
I don't feel there is enough in the book to convince me of the strength of his theory of behavioral economics, but it does offer some real good food for thought.
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inaccurate. George Akerlof argues in support of behavioral economics over the more popular Keynesian economic theory. He pulls examples over the past 20 years or so to establish his argument over behavioral economic's superiority. He posits that people work from stories about economic behavior. These stories are patters of behavior that they expect others to follow. Through the book he uses these stories to explain unemployment, recessions, other behaviors.
The book makes good use of examples and the author does take the time to explain his theory and how it differs from Keynesian economics.
Its weakness is in the approach. Some of the "real people" examples seem odd, for instance, the real person who who is young, and fresh out of school is a female professor at Harvard. This doesn't feel like a real person and weakens the value of his example. Many of his examples, especially those from history feel either contrived or cherry-picked. In my opinion, the book would have been much stronger if he had pointed out criticisms or alternate theories and addressed them in comparison. He does provide a lot of notes, some with references, which does give it some feel of a scientific paper.
I don't feel there is enough in the book to convince me of the strength of his theory of behavioral economics, but it does offer some real good food for thought.
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LibraryThing member vegetarian
Emotional and intangible dynamics--confidence in institutions, illusions about the nature of money, sense of being treated unfairly--affect how persons decide about borrowing, spending, saving, and investing
LibraryThing member PaolaM
First of all, the good bits - this book was originally written in 2008, and the 2010 paperback edition preface states:
As we write this in October 2009, we are afraid that the optimism, even if still a bit guarded, reflects an Indian summer. We do not know what lies ahead. We go along with those who
But the Animal Spirits view of confidence, both overconfidence and underconfidence, makes us wary. It tells us that we do not know what lies ahead. And now should be the time when we are making plans for what happens if there are future shocks: if there are future Lehman Brothers, future massive declines in the stock market, yet more unanticipated bankruptcies. In the United States, for example, we fear that neither the Congress nor the Obama administration is now readying the public for the possible necessity of further stimulus packages, or for further dramatic action by the Federal Reserve to support credit markets if that should become necessary.
However, the problem I have with this book is that it tends to sell a viewpoint of how the economy works without presenting enough of the alternative viewpoints (though, as the authors state, they perceive their -neokeynesian - view as a minority view at present).
In a nutshell, and very coarsely, the main view is: people are boundedly rationaly, this is something that the mainstream economic view does not want to know about, but really they should, as "animal spirits" do matter a lot - and they proceed to show how this point of view sheds light on a number of economic issues, from why people cannot find work to why financial markets are volatile.
In the end, however, I don't think they manage to reach their objective, as I think most readers would come away with a picture whereby (macro)economists belong to either of two tribes, one peddling unfettered markets, while the other calls for more geovernment intervention to "save" individuals from the effects of their cognitive shortcomings (saving more for retirement, not fallig for snake oil and the like). This is compounded by (macro)economists being unable to agree on the basics (e.g. is there or is there not a trade-off between inflation and unemployment? Does a natural rate of unemployment exists), so surely the reader is bound to be more baffled after reading this book than before starting it.
As we write this in October 2009, we are afraid that the optimism, even if still a bit guarded, reflects an Indian summer. We do not know what lies ahead. We go along with those who
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consider it a good sign, at the time of this writing, that there are “green shoots” of recovery, and that forecasters are talking about growth of GDP sometime in the near future. It would be far worse if people were gloomier.But the Animal Spirits view of confidence, both overconfidence and underconfidence, makes us wary. It tells us that we do not know what lies ahead. And now should be the time when we are making plans for what happens if there are future shocks: if there are future Lehman Brothers, future massive declines in the stock market, yet more unanticipated bankruptcies. In the United States, for example, we fear that neither the Congress nor the Obama administration is now readying the public for the possible necessity of further stimulus packages, or for further dramatic action by the Federal Reserve to support credit markets if that should become necessary.
However, the problem I have with this book is that it tends to sell a viewpoint of how the economy works without presenting enough of the alternative viewpoints (though, as the authors state, they perceive their -neokeynesian - view as a minority view at present).
In a nutshell, and very coarsely, the main view is: people are boundedly rationaly, this is something that the mainstream economic view does not want to know about, but really they should, as "animal spirits" do matter a lot - and they proceed to show how this point of view sheds light on a number of economic issues, from why people cannot find work to why financial markets are volatile.
In the end, however, I don't think they manage to reach their objective, as I think most readers would come away with a picture whereby (macro)economists belong to either of two tribes, one peddling unfettered markets, while the other calls for more geovernment intervention to "save" individuals from the effects of their cognitive shortcomings (saving more for retirement, not fallig for snake oil and the like). This is compounded by (macro)economists being unable to agree on the basics (e.g. is there or is there not a trade-off between inflation and unemployment? Does a natural rate of unemployment exists), so surely the reader is bound to be more baffled after reading this book than before starting it.
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LibraryThing member melsmarsh
I was expecting a lot more psychology than there was. All of this was pretty much commonsense which even as a non-financial person, I knew several years ago even before the housing bubble burst.
LibraryThing member slothman
Behavioral economics is a new field in economics that acknowledges that homo economicus— the entirely-rational actors featured in classical economic theory— are not the same beings as homo sapiens. John Maynard Keynes described this influence as “animal spirits”. Akerlof and Shiller
The authors assert that this is not a fundamental flaw with capitalism, but merely a basis for devising effective market regulations. They do not provide explicit policy recommendations; the book merely provides a model with explanatory power that can be used as a basis for further discussion. I’m looking forward to further developments.
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identify five factors contributing to these animal spirits: confidence, fairness, corruption and bad faith, money illusion, and stories. They identify how these affect individual behaviors and how, in aggregate, these behaviors produce macroeconomic phenomena.The authors assert that this is not a fundamental flaw with capitalism, but merely a basis for devising effective market regulations. They do not provide explicit policy recommendations; the book merely provides a model with explanatory power that can be used as a basis for further discussion. I’m looking forward to further developments.
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Awards
Financial Times and Schroders Business Book of the Year (Longlist — 2009)
Axiom Business Book Award (2010)
Robert E. Lane Award (2010)
Spear's Book Award (Spear's — 2009)