Animal spirits: how human psychology drives the economy, and why it matters for global capitalism / George A. Akerlof and Robert J. Shiller. John Maynard Keynes coined the term “animal spirits” to refer to emotional mindsets. Akerlof’s and Shiller’s distinguished reputations command attention, and. Summary of “Animal Spirits” — Akerlof and Shiller. Every major economic crisis represents an occasion to review the economic theories that purport to explain it, .
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With these in hand, Akerlof and Shiller present a compelling set of explanations for macroeconomic questions like “Why do economies fall into depression? Almost ten years after this book was first published it’s depressing that the insights offered here have gained little traction among businessmen, politicians and regulators who still believe that unfettered markets are best and that government is virtually always part of the problem, not part of the solution.
If we want to live by Keynes’s “the world is ruled by little else”, it is in macroeconomics that we will do so. Akerlof examines five important psychological elements that Animal Spirits is a cheesy name for a good book. People are crazy, so the authors say, their behaviour is irrational and, in the Keynesian way, this can cause economies to crash and stay crashed.
This book provides a more convincing and deeper explanation of the recent credit crisis than any I have read. There is also a more serious undercurrent in this book, about how the “rational” economists ignore how we really feel. It would lose marketability but I wish I would hear an economist talk about linearization- various economics theories of the past are actually linearized approximations of actual behaviour, but behaviour outside of the valid linear range is either undefined and maybe undefinable or bears more research.
The second part of the book tries to apply these “animal spirits” to real-world problems in macroeconomics; this is where the book comes up a little short. Rather, you make your inflationary expectations, I’ll make mine, and we will agree on a nominal dollar amount.
By the end, however, the reader is left scratching his head, wondering why he is left with a set of recommendations that amount to little more than the warning that people will sometimes behave irrationally, and that this behavior can often have a disproportionate effect upon macroeconomic patterns.
It summarises well the areas where behavioural economic research indicates real deficiencies in current macroeconomic models; what it does not do is propose obvious alternative models that are not themselves subject to obvious problems. Higher progressive income tax on dollar compensation coupled with lower taxes on options compensation might accomplish this. In other projects Wikiquote. This seems like a common sense approach, but was apparently revolutionary for economists.
I also really liked the chapter on the asymmetrical behaviour of compensation in economic down-turns vs.
Animal Spirits (book) – Wikipedia
Only the wise hand of government on economic the tiller can save us. They seem to imply that, given more study, “animal spirits” could be understood and incorporated into economic formulas and models. What you want is the maximum probability, and for that you need a prior distribution.
This is the one criticism neoclassicists make of cognitive economics that I do take seriously: Examples would be the recent, ill-fated real estate mania in the United States or the malaise on the part of business operators in FDR’s second ter Two Nobel Prize-winning economists, George Akerlof and Robert Schiller, use their version of Keynes’s theory of “animal spirits” to explain past financial crises and how economies s;irits.
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.
Although I read this four years ago, I still remember it very clearly. This means with intelligent government regulation to curb the effects of mass irrationality of booms and busts, and consumer insight into their own irrationality: We teach economics for 1 semester, typically the last semester of the senior year. But he makes no predictive propositions; there’s nothing quantitative.
In one instance I failed to note the pagethey seem to go along with the story that contacting out of government services leads to cost savings.
Nov 25, Brian Jones rated it liked it Shelves: But the solution is safer, more regulated credit, not adopting business models that rely on less credit. Nov 19, Hadrian rated it really liked it Shelves: If ever there were a time for a sobering analysis of how macroeconomic events actually occur, that time was surely now. According to the authors, economists have tended to de-emphasize the importance of emotional factors, as the effects of emotions are difficult to model and quantify.
This same behavior, though in even more extreme form, is one key factor that prevents workers and job-seekers from lowering their wage demands during deflationary recessions. I found this book to be a significant disappointment.
The dot-coms took a very hard fall, most of them never to rise again. It is relatively short and contains a superb bibliography and reference section.
It is for this reason that the authors recommend re-regulation of the economy — anmial providing some sense of the system being far and not rigged is an important first step to giving people their belief back in the system, and without that belief, the system basically collapses.
The book doesn’t explore the solution space much- my first thought is that an progressive proportion of wages should be in the flexible form of stock options in the employers company heavily mixed with index funds for the employer’s industry and also index funds for the entire market, with restrictions on sales or transfers within some time window of say anywhere from 5 years to retirement age of the employee.
Reviewing the book for the Financial TimesClive Shillef write “it is a fine book at exactly the right time In conventional economic thinking, any amount of money is better than nothing, and ought to be accepted.
Spiris page was last edited on 3 Novemberat Like I said, this is behavioural economics directly related to the economy at large and it makes for fascinating reading. Irrational Exuberance was a much better read. They never go down NOT!
Much work has been done in behavioral economics shillre recent years and this study gives excellent synopses. It just means that people prefer not to include an indexing scheme because it complicates negotiation of a contract.
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
Note that despite the playful illustrations spkrits the cover this is not a light pop-economics book. Published init still has some valid things to say. Books by George A. The preface goes on to describe how Keynes’ ideas suggest the economy will function best with a moderately high level of government intervention, which they compare to a happy home where children thrive with parents that are neither too authoritarian as in a Marxist economy nor too permissive as in a neoliberal economy.
What drives bubbles to pop has much less to do with the objective conditions that make looking at bubbles encourage you to shiller to put your hands over your eyes.
Neoclassical economics succeeds as a science in one sense: