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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Preview — Animal Spirits by George A. 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 aoerlof events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today.

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 anmial 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. Hardcoverpages.

Published February 1st by Princeton University Press first published To see what your friends thought of this book, aoerlof sign up. To ask other readers questions about Animal Spiritsplease sign up. I don’t know much about economy, but i am passionate for psychology Is this book accessible? I just finished my second year in mathematical economics. See 2 questions about Animal Spirits…. Lists with This Book. Nov 19, Hadrian rated it really liked it Shelves: Although I read this four years ago, I still remember it very clearly.

A summary of the Keynesian ‘animal spirits’, or non-rational economic actions which people do, sometimes contributing to later economic crises. These include, but are not limited to, Confidence, the myth of fairness, the illusion of money, corruption, and ‘Stories’ as past explanations of behavior.

These are applied to multiple spiritss, such as real estate bubbles, central banking, racial discrimination, why recessions happen Although I read this four years ago, I still remember it very clearly. These are applied to multiple questions, such as real estate bubbles, central banking, racial discrimination, why recessions happen at all, and so forth.

Although these ideas are not entirely revolutionary now, but they are necessary and important to consider. With money, humans are hardly rational beings, even less than usual. Some have noted the lack of ‘solutions’ presented here, apart from government regulation and intervention, but I must ask — is there even a real chance of changing human nature? May 22, Trevor rated it really liked it Shelves: This is also, effectively, a re-introduction to Keynesian economics, a view of economics that went out apirits favour with Milton Freedman and Ronald Reagan — the consequences of which we are living with today.


The idea that unemployment is working people taking a kind of holiday is equally laughable, even if it does mean that believing such allows right-wing types can feel justified in cutting unemployment benefits from people so as to give them an aakerlof to find a job.

Animal Spirits (book) – Wikipedia

Animal spirits relate to some of the predictably irrational if irrational they really are ways humans set about engaging with the economy. This feeds into one of the other animal spirit ideas — that is, that we need to trust the system, that there will be no corruption undermining the system while we are making investments in that system.

A quick look back at and what has happened spjrits shows that our current system runs afoul of both of those precepts.

Given all this, it does make it hard not to think that the system is rigged. Why Do Economies Fall into Depression? One of the things about economics is that it seems impossible to predict the future, which is annoying, since it does seem that virtually the whole of economics is set up to do exactly that. All the same, and as a case in point, in Australia we appear to be on the cusp of a housing collapse — something we avoided while the rest of the world was engaged in one and which we have been told for akerlog decade is impossible to happen here because, unlike elsewhere, the fundamentals of our economy are sound and Australia shilller very special circumstances that made such a collapse imposssible.

What drives bubbles to pop has much less to do with the objective conditions that make akerkof at bubbles encourage you to want to put your hands over your eyes. Akerloof is for this reason that the authors recommend re-regulation of aniimal economy — as 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.

Like I said, this is behavioural economics directly related to the economy at large and it makes for fascinating reading. The little people, the munchkins, represented the poor working class. The wicked witch stood for the selfish business interests.

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

akrelof The wizard himself was the great deceiver, the U. It was a riddle. Who was Humpty Dumpty? He was an egg. Dec 12, Gordon rated it it was amazing.

Akerllf what we were left with was a model of rational economic decision-making, where every consumer and businessperson carefully and logically analyzed the real value of assets, was capable of figuring out how to discount future cash flows and account for both inflation and the cost of capital, and never ever succumbed to wild manias or profound despair.

This is the somewhat caricatured version of economic thinking that Akerlof and Shiller attack. At least, he became the shillet after the US got over its painful recession in Reagan was a master story-teller and his story became the dominant story. Fast forward to the recession of The authors look at the roots of the recessions and depressions of the previous years or so, and identify the factors that they think need to be brought into a deeper understanding of economics to explain the current crisis.

Stories have great power to drive economies. The dot-coms took a very hard fall, most of them never to rise again. Economists use too simple a model of how people enter into buying and selling transactions exchanges. Fairness is central to how exchanges really work.

In conventional economic thinking, any amount of money is better than nothing, and ought to be accepted. We are hard-wired for a fairness ethic — at least where fair exchange is concerned. This appears to be a cultural universal. Anytime there is a great mania, corruption will come to light when the air starts to come out of the bubble.

Failures of government regulation can cause the effect of this kind of behavior to spin wildly out of control, so that these acts are no longer simple white-collar crimes, but threats to the system as a whole.


The behavior of unscrupulous mortgage originators, who sold mortgages to people they knew would be unlikely to keep up with the payments once their variable rate adjusted upward, was abetted by regulatory failure.

Why does the stock market and the real estate market overshoot on the way up … and on the way down? Akerlof and Shiller attribute a good part of this to over-confidence on the way up, when everyone feels like an investing genius, and fear on the way down, when everyone thinks the Great Depression is upon us.

Now, if only I could figure out how to time it perfectly … Ultimately, it was a crisis of confidence that caused the entire banking system to teeter on the brink in the fall of It just makes us feel better.

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. View all 4 comments.

Dec 22, Sagar Jethani rated it it was ok Shelves: It was with great anticipation that I looked forward dpirits reading “Animal Spirits”. If ever there were a time for a sobering analysis of how macroeconomic events actually occur, that time was surely now. Instead, akerloff I found was zpirits volume which took great pains to destroy a carefully-crafted straw-man: In other words, the straw-man is a stand-in for Milton Friedman, or possibly Alan Greenspan.

I expected more from the authors, given their spiritd credentials. George Akerlof won the Nobel Prize in economics inand Robert Shiller has long been an astute observer of the madness of crowds. Instead of a penetrating analysis which yields up new findings, the reader is left with conclusions that are obvious to anyone familiar with the way economic decisions are made in the real world.

Slirits and Shiller remind me of George Soros, who, similarly, exults in destroying a straw-man which only the most extreme worshiper xhiller untrammeled free-market capitalism approximates. Do we really need another missive which forcefully argues that people often act in irrational ways that harm their own self-interest? Have we not seen overwhelming evidence in the past three years that unfettered capitalism can destroy the very basis of wealth accumulation, and that there is a proper and appropriate role for government regulation to minimize the swings in consumer confidence?

The authors appear to be writing for an extreme skeptic, who, even after witnessing the dynamics involved in the housing meltdown akelof credit crunch, remain unconvinced of these precepts. But which intelligent observers continue to need persuading? Insofar as “Animal Spirits” takes the reader on a guided tour through some of the financial cataclysms of the 20th century, it ajerlof useful as akerlfo historical narrative.

The outcome of this narrative, however, is disappointing. The book’s agenda is initially described as being fairly ambitious, setting about to do no less than change the way we interpret and understand economic events. 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.

This was always one of the weaker points of Keynes’ analysis, essentially a big shrug of the shoulders, removing any notion of economic actors rational responses to changing circumstances.

This book is simply a longer restatement of that argument. 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. Only the wise hand of government on economic the tiller can save us.

This leaves several questions unanswered.