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

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Overview

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.

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Editorial Reviews

The Globe & Mail
What Sigmund Freud did for the study of the mind, George Akerlof and Robert Shiller are doing for economics. Freud, healer or fake—take your pick—built a career and a field of medicine on the idea that people are driven by irrational forces. Akerlof, professor of economics at the University of California, Berkeley and winner of the 2001 Nobel Prize in economics, and Shiller, the Yale economist who is the eminence grise of the housing meltdown, argue that massive government market intervention programs are the only way to turn fear into enthusiasm for spending and investing—the 'animal spirits' that are an essential part of recovery. . . . Akerlof and Shiller pick up on the idea of the emotional impetus to investment. With elegant reasoning and lovely prose, they demonstrate that we'll all be wallowing in misery unless governments around world, especially the in the G7 nations, help to return markets to optimism. . . . Animal Spirits is a fine discussion of the last few decades of development of economic theory, especially monetary economics.
— Andrew Allentuck
The Economist
[T]his book is rather more than the usual lament about the failings of economics. Its authors are two of the discipline's leading lights. . . . Most of the time, the unrealistic assumption of rationality serves economists fairly well. They should, however, be more prepared to depart from it, especially in times like these—even if that makes behaviour more difficult to describe in elegant equations. Messrs Akerlof and Shiller have therefore done their profession a service.
The Australian
Another contribution to the human-nature-ensures-economics-is-irrational school of thought. But, unlike many of the rants against people trying to make an honest profit, this is a measured examination of how the present crisis is explained in economic terms. And so it should be. George Akerlof is a Nobel prizewinner, Robert Shiller teaches at Yale and is the author of Irrational Exuberance, which should give you an idea of this one's approach. This fascinating work uses economics to explain real-life issues, such as real estate price cycles, to key policy problems, such as the relationship between inflation and employment.
— Stephen Matchett
The National
George Akerlof and Rober Shiller's Animal Spirits is a plea to start believing our lying eyes rather than the model. Rather than try to explain away the apparent irrationality in human behaviour, Akerlof and Shiller say we need to try to understand it and shape policies that take it into account. . . . The core message of Animal Spirits is that we should stop trying to cage the spirits and instead admit their central importance. Specifically, this means that world governments will need to intervene forcefully in the current economic crisis with both fiscal stimulus and direct measures to stimulate lending—to restore some of the confidence that the crash has sapped.
— Matthew Yglesias
The American Prospect
In saluting Keynes' quip, Akerlof and Shiller argue that much of the story is in the unreliability and incompleteness of supposedly rational behavior—the micro-foundation of the free-market model. They contend that modern economics, even self-described Keynesian economics, has given short shrift to this core behavioral insight. . . . Their best chapter is on the limited capacity of central banks to prevent or cure calamities.
— Robert Kuttner
The Age
In an intriguing new book, Animal Spirits, US economists George Akerlof and Robert Shiller argue that psychology plays a far bigger role in determining economic outcomes than economists realize—and that, broadly speaking, people get what they expect. If we think good times are ahead, we act confidently in a way that creates them. And if we expect a downturn ahead, we act defensively and unwittingly ensure that's what we get.
— Tim Colebatch
The Business Economist
Animal Spirits presents a rigorous case for the importance of 'confidence multipliers' and 'stories' in explaining recent market behaviour and of 'fairness' and 'money illusion' in preventing wages from falling in recessions to the market-clearing rate. Written in an accessible style, the book provides a very useful practical primer for policy-makers, practitioners and academics on many aspects of the current crisis. The authors also make a compelling theoretical case for macroeconomists taking more account of the role of non-economic motives and irrational responses.
— Richard Bronk
New York Times Book Review
Akerlof and Shiller are the first to try to rework economic theory for our times. The effort itself makes their book a milestone. . . . And their book takes their case not just to economists, but also to the general reader. It is short (176 pages of text) and easy enough for laymen to understand.
— Louis Uchitelle
Time
Animal Spirits [is] . . . the new must-read in Obamaworld.
— Michael Grunwald
Time.com's Swampland
White House Budget Director Peter Orszag is a numbers guy, a propeller head as President Obama would say. But as David Von Drehle and I write in this week's print version of Time, Orszag has been spending his time recently reading not about spreadsheets, but about psychology. In particular, he has been reading a new book by the economists George Akerlof and Robert Shiller called Animal Spirits: How Human Psychology Drives The Economy, and Why It Matters For Global Capitalism. . . . We are, it turns out, slaves to the Animal Spirits. They have brought us to our knees. And now they are the only things that can save us.
— Michael Scherer
Financial Times
An influential Democrat who was also one of the world's top-ten, highest-paid hedge fund managers last year thinks he knows which book is at the top of the White House reading list this spring: Animal Spirits, the powerful new blast of behavioural economics from Nobel prize-winner George Akerlof and Yale economist Robert Shiller.
BusinessWeek
The two superstars have produced a truly innovative and bold work that attempts to show how psychological factors explain the origins of the current mess and offer clues for possible solutions. At a time when plummeting confidence is dragging down the market and the economy, the authors' focus on the psychological aspect of economics is incredibly important.
— Michael Mandel
New Yorker
There is barely a page of Animal Spirits without a fascinating fact or insight.
— John Lanchester
New York Review of Books
Akerlof and Shiller succeed, too, in demonstrating that conventional macroeconomic analyses often fail because they omit not just readily observable facts like unemployment and institutions such as credit markets but also harder-to-document behavioral patterns that fall within the authors' notion of 'animal spirits.' Confidence plainly matters, and so does the absence of it. When the public mood swings from exuberance to anxiety, or even fear, the effect on asset prices as well as on economic activity outside the financial sector can be large.
— Benjamin M. Friedman
Nature
Akerlof and Shiller remind us that emotional and intangible factors—such as confidence in institutions, illusions about the nature of money or a sense of being treated unfairly—can affect how people make decisions about borrowing, spending, saving and investing. Animal Spirits is an affectionate tribute to the man [John Maynard Keynes] whose ideas, unfashionable for the past 30 years, have resurged.
New York Observer
Animal Spirits is a welcome addition to our Hannitized national economic debate, in which anyone who advocates government spending risks being labeled a socialist. . . . Animal Spirits is most compelling when the authors summon all the key behavioral patterns to explain vast, complex phenomena such as the Great Depression. . . . Animal Spirits . . . [is] aimed squarely at the general reader, and rightly so: Macroeconomics is now everybody's business—the banks are playing with our money.
— Andrew Rosenblum
Bloomberg News
[A] lively new financial crisis book.
— James Pressley
Daily Kos
With Animal Spirits we hone in on how incentives and narratives can be created to channel the human psychological factor into collectively healthy directions, and how to be aware of the fictions we tell ourselves about how we wish the world and greed and financial security worked. [Animal Spirits] sheds light on complex issues and leaves readers with a better grasp of undercurrents and—most importantly—a rediscovered belief in principles of common sense and caution.
Portfolio.com
The new book from George Akerlof and Robert Shiller, Animal Spirits, has been getting a lot of press of late, and quite rightly: it's really good. It's not only very readable; it also offers a compelling vision of a very different type of macroeconomics—one where behavioral considerations are front and center, rather than simply providing what Clive Crook calls 'ad hoc modifications' to the standard, ridiculously oversimplified and unrealistic, model. . . . [I]f you read only one book on this subject, make it Animal Spirits.
— Felix Salmon
Mint
As George Akerlof and Robert Shiller show in a new book Animal Spirits, this is no freak storm. It may mark the long-awaited encounter between psychology and economics. . . . Akerlof and Shiller's book is probably the first macroeconomic exploration of the subject that is accessible to those interested in the subject but who don't have the academic training to understand the detailed argument.
SeekingAlpha
My book of the week is an easy one this time around: it's Animal Spirits, by Robert Shiller and George Akerlof. . . . Admittedly, I'm biased as a fan of both Shiller's and Akerlof's. Believe me, however, when I say the blessedly brief Animal Spirits is a thoughtful and well-written look at how economics discarded psychology and lost its way on the trip from Adam Smith, through Keynesianism, to laissez-faire. The book puts the current crisis in a useful economic context, with consistent and practical selections from behavioral finance illuminating everything along the way. . . . Highly recommended.
— Paul Kedrosky
Orgtheory.net
Akerlof and Shiller take psychological research seriously, and it's refreshing to see that they're not trying to reinvent the wheel. . . . The book is an interesting read and would probably be very useful for an undergrad class that needs an introduction to behavioral economics. A & S do a nice job of moving between the theoretical and the practical, the empirical and the implied. The writing is accessible and the topic is more than relevant to our current economic situation.
Edmonton Journal
Animal Spirits is succinct, clear and lively.
— Brad Willis
Shanghai Daily
The authors are right in pointing out the inadequacy of conventional economics in understanding, not to say addressing, today's economic woes, because they fail to take into account these animal spirits.
— Wan Lixin
Delta Sky
[Animal Spirits] is a short, thoughtful and sometimes simplistic book that calls for a different vision of economics. . . . Animal Spirits may well be a GPS system for a changing economic future.
— Gene Rebeck
Times Higher Education
[T]he authors do a superb job of conveying the importance of bevaioural economics to a non-specialist audience. They increase our understanding of recent economic events and they show that animal spirits affect how governments should manage the economy.
— Natalie Gold
JASSS
[T]his very book seems to be one of the 'must-reads' in the Obama administration.
— Andreas Ernst
Investment Professional
Ideologists are likely to dismiss this volume. However, for other readers—whether their perspectives are quantitative or qualitative—Animal Spirits may fill a troubling gap in existing investigations of the causes of booms and busts.
— Thomas H. Wilkins
Midway Review
Akerlof and Shiller's book is an interesting and thought-provoking attempt to understand how underlying human psychology drives the economy. The questions they pose and the examples they provide should be read by any economist seeking to better understand the differences between what economics predict will occur, and how people actually behave as individuals and within larger groups.
— Dmitri Leybman
Wilson Quarterly
Animal Spirits, which attempts to leverage the insights of behavioral economics to reanimate the vision of John Maynard Keynes, is perfectly timed for the present moment.
— Nick Schulz
Irish Times
Animal Spirits is exceptional in showing how economics can be accessible and relevant in dealing with this awesome challenge.
Money Science
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.
Challenge
A reader would be right in thinking that Animal Spirits is an especially appealing but provocative appetizer that stimulates the interest of unorthodox and anti-orthodox economists everywhere to rewrite macroeconomics as if humans beings with their messy emotions, group dynamics, and all the rest really exist. Readers will also find Animal Spirits an invitation for society to ignore new classical economics in the interest of effective and decent economic policy.
— Marcellus Andrews
Cato Journal
[T]he authors are . . . [b]oth . . . credited with a deep understanding of economic history, the history of economic thought, and today's global economic environment. That makes this book a 'must read' for anyone seeking insights into recent economic events and seeking ways of crafting government policies to prevent another similar economic downturn.
— Jagadeesh Gokhale
Challenge - Marcellus Andrews
A reader would be right in thinking that Animal Spirits is an especially appealing but provocative appetizer that stimulates the interest of unorthodox and anti-orthodox economists everywhere to rewrite macroeconomics as if humans beings with their messy emotions, group dynamics, and all the rest really exist. Readers will also find Animal Spirits an invitation for society to ignore new classical economics in the interest of effective and decent economic policy.
Cato Journal - Jagadeesh Gokhale
[T]he authors are . . . [b]oth . . . credited with a deep understanding of economic history, the history of economic thought, and today's global economic environment. That makes this book a 'must read' for anyone seeking insights into recent economic events and seeking ways of crafting government policies to prevent another similar economic downturn.
Obama budget director (quoted from "Time er Orszag

[Animal Spirits] really applies to all the big areas where we need change.
From the Publisher

"George Akerlof and Rober Shiller's Animal Spirits is a plea to start believing our lying eyes rather than the model. Rather than try to explain away the apparent irrationality in human behaviour, Akerlof and Shiller say we need to try to understand it and shape policies that take it into account. . . . The core message of Animal Spirits is that we should stop trying to cage the spirits and instead admit their central importance. Specifically, this means that world governments will need to intervene forcefully in the current economic crisis with both fiscal stimulus and direct measures to stimulate lending--to restore some of the confidence that the crash has sapped."--Matthew Yglesias, The National

"In saluting Keynes' quip, Akerlof and Shiller argue that much of the story is in the unreliability and incompleteness of supposedly rational behavior--the micro-foundation of the free-market model. They contend that modern economics, even self-described Keynesian economics, has given short shrift to this core behavioral insight. . . . Their best chapter is on the limited capacity of central banks to prevent or cure calamities."--Robert Kuttner, The American Prospect

"Akerlof and Shiller take psychological research seriously, and it's refreshing to see that they're not trying to reinvent the wheel. . . . The book is an interesting read and would probably be very useful for an undergrad class that needs an introduction to behavioral economics. A & S do a nice job of moving between the theoretical and the practical, the empirical and the implied. The writing is accessible and the topic is more than relevant to our current economic situation."--Orgtheory.net

"Animal Spirits is succinct, clear and lively."--Brad Willis, Edmonton Journal

"In an intriguing new book, Animal Spirits, US economists George Akerlof and Robert Shiller argue that psychology plays a far bigger role in determining economic outcomes than economists realize--and that, broadly speaking, people get what they expect. If we think good times are ahead, we act confidently in a way that creates them. And if we expect a downturn ahead, we act defensively and unwittingly ensure that's what we get."--Tim Colebatch, The Age

"The authors are right in pointing out the inadequacy of conventional economics in understanding, not to say addressing, today's economic woes, because they fail to take into account these animal spirits."--Wan Lixin, Shanghai Daily

"[Animal Spirits] is a short, thoughtful and sometimes simplistic book that calls for a different vision of economics. . . . Animal Spirits may well be a GPS system for a changing economic future."--Gene Rebeck, Delta Sky

"Animal Spirits presents a rigorous case for the importance of 'confidence multipliers' and 'stories' in explaining recent market behaviour and of 'fairness' and 'money illusion' in preventing wages from falling in recessions to the market-clearing rate. Written in an accessible style, the book provides a very useful practical primer for policy-makers, practitioners and academics on many aspects of the current crisis. The authors also make a compelling theoretical case for macroeconomists taking more account of the role of non-economic motives and irrational responses."--Richard Bronk, The Business Economist

"[T]he authors do a superb job of conveying the importance of bevaioural economics to a non-specialist audience. They increase our understanding of recent economic events and they show that animal spirits affect how governments should manage the economy."--Natalie Gold, Times Higher Education

"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."--Money Science
"[T]his very book seems to be one of the 'must-reads' in the Obama administration."--Andreas Ernst, JASSS

"Ideologists are likely to dismiss this volume. However, for other readers--whether their perspectives are quantitative or qualitative--Animal Spirits may fill a troubling gap in existing investigations of the causes of booms and busts."--Thomas H. Wilkins, Investment Professional

"Akerlof and Shiller's book is an interesting and thought-provoking attempt to understand how underlying human psychology drives the economy. The questions they pose and the examples they provide should be read by any economist seeking to better understand the differences between what economics predict will occur, and how people actually behave as individuals and within larger groups."--Dmitri Leybman, Midway Review

"Animal Spirits, which attempts to leverage the insights of behavioral economics to reanimate the vision of John Maynard Keynes, is perfectly timed for the present moment."--Nick Schulz, Wilson Quarterly

"Animal Spirits is exceptional in showing how economics can be accessible and relevant in dealing with this awesome challenge."--Irish Times

"A reader would be right in thinking that Animal Spirits is an especially appealing but provocative appetizer that stimulates the interest of unorthodox and anti-orthodox economists everywhere to rewrite macroeconomics as if humans beings with their messy emotions, group dynamics, and all the rest really exist. Readers will also find Animal Spirits an invitation for society to ignore new classical economics in the interest of effective and decent economic policy."--Marcellus Andrews, Challenge

"[T]he authors are . . . [b]oth . . . credited with a deep understanding of economic history, the history of economic thought, and today's global economic environment. That makes this book a 'must read' for anyone seeking insights into recent economic events and seeking ways of crafting government policies to prevent another similar economic downturn."--Jagadeesh Gokhale, Cato Journal

New York Times Book Review - Louis Uchitelle
Akerlof and Shiller are the first to try to rework economic theory for our times. The effort itself makes their book a milestone. . . . And their book takes their case not just to economists, but also to the general reader. It is short (176 pages of text) and easy enough for laymen to understand.
New Yorker - John Lanchester
There is barely a page of Animal Spirits without a fascinating fact or insight.
New York Review of Books - Benjamin M. Friedman
Akerlof and Shiller succeed, too, in demonstrating that conventional macroeconomic analyses often fail because they omit not just readily observable facts like unemployment and institutions such as credit markets but also harder-to-document behavioral patterns that fall within the authors' notion of 'animal spirits.' Confidence plainly matters, and so does the absence of it. When the public mood swings from exuberance to anxiety, or even fear, the effect on asset prices as well as on economic activity outside the financial sector can be large.
Financial Times - Clive Crook
In their new book, two of the most creative and respected economic thinkers currently at work, George Akerlof and Robert Shiller, argue that the key is to recover Keynes's insight about 'animal spirits'—the attitudes and ideas that guide economic action. The orthodoxy needs to be rebuilt, and bringing these psychological factors into the core of economics is the way to do it. . . . The connections between their thinking on the limits to conventional economics and the issues thrown up by the breakdown are plain, even if they were unable to make every link explicit. Even more than Akerlof and Shiller could have hoped, therefore, it is a fine book at exactly the right time. . . . Animal Spirits carries its ambition lightly—but is ambitious nonetheless. Economists will see it as a kind of manifesto.
BusinessWeek - Michael Mandel
The two superstars have produced a truly innovative and bold work that attempts to show how psychological factors explain the origins of the current mess and offer clues for possible solutions. At a time when plummeting confidence is dragging down the market and the economy, the authors' focus on the psychological aspect of economics is incredibly important.
Time - Michael Grunwald
Animal Spirits [is] . . . the new must-read in Obamaworld.
Time.com's Swampland - Michael Scherer
White House Budget Director Peter Orszag is a numbers guy, a propeller head as President Obama would say. But as David Von Drehle and I write in this week's print version of Time, Orszag has been spending his time recently reading not about spreadsheets, but about psychology. In particular, he has been reading a new book by the economists George Akerlof and Robert Shiller called Animal Spirits: How Human Psychology Drives The Economy, and Why It Matters For Global Capitalism. . . . We are, it turns out, slaves to the Animal Spirits. They have brought us to our knees. And now they are the only things that can save us.
New York Observer - Andrew Rosenblum
Animal Spirits is a welcome addition to our Hannitized national economic debate, in which anyone who advocates government spending risks being labeled a socialist. . . . Animal Spirits is most compelling when the authors summon all the key behavioral patterns to explain vast, complex phenomena such as the Great Depression. . . . Animal Spirits . . . [is] aimed squarely at the general reader, and rightly so: Macroeconomics is now everybody's business—the banks are playing with our money.
Bloomberg News - James Pressley
[A] lively new financial crisis book.
The Globe & Mail - Andrew Allentuck
What Sigmund Freud did for the study of the mind, George Akerlof and Robert Shiller are doing for economics. Freud, healer or fake—take your pick—built a career and a field of medicine on the idea that people are driven by irrational forces. Akerlof, professor of economics at the University of California, Berkeley and winner of the 2001 Nobel Prize in economics, and Shiller, the Yale economist who is the eminence grise of the housing meltdown, argue that massive government market intervention programs are the only way to turn fear into enthusiasm for spending and investing—the 'animal spirits' that are an essential part of recovery. . . . Akerlof and Shiller pick up on the idea of the emotional impetus to investment. With elegant reasoning and lovely prose, they demonstrate that we'll all be wallowing in misery unless governments around world, especially the in the G7 nations, help to return markets to optimism. . . . Animal Spirits is a fine discussion of the last few decades of development of economic theory, especially monetary economics.
Portfolio.com - Felix Salmon
The new book from George Akerlof and Robert Shiller, Animal Spirits, has been getting a lot of press of late, and quite rightly: it's really good. It's not only very readable; it also offers a compelling vision of a very different type of macroeconomics—one where behavioral considerations are front and center, rather than simply providing what Clive Crook calls 'ad hoc modifications' to the standard, ridiculously oversimplified and unrealistic, model. . . . [I]f you read only one book on this subject, make it Animal Spirits.
SeekingAlpha - Paul Kedrosky
My book of the week is an easy one this time around: it's Animal Spirits, by Robert Shiller and George Akerlof. . . . Admittedly, I'm biased as a fan of both Shiller's and Akerlof's. Believe me, however, when I say the blessedly brief Animal Spirits is a thoughtful and well-written look at how economics discarded psychology and lost its way on the trip from Adam Smith, through Keynesianism, to laissez-faire. The book puts the current crisis in a useful economic context, with consistent and practical selections from behavioral finance illuminating everything along the way. . . . Highly recommended.
The Australian - Stephen Matchett
Another contribution to the human-nature-ensures-economics-is-irrational school of thought. But, unlike many of the rants against people trying to make an honest profit, this is a measured examination of how the present crisis is explained in economic terms. And so it should be. George Akerlof is a Nobel prizewinner, Robert Shiller teaches at Yale and is the author of Irrational Exuberance, which should give you an idea of this one's approach. This fascinating work uses economics to explain real-life issues, such as real estate price cycles, to key policy problems, such as the relationship between inflation and employment.
The National - Matthew Yglesias
George Akerlof and Rober Shiller's Animal Spirits is a plea to start believing our lying eyes rather than the model. Rather than try to explain away the apparent irrationality in human behaviour, Akerlof and Shiller say we need to try to understand it and shape policies that take it into account. . . . The core message of Animal Spirits is that we should stop trying to cage the spirits and instead admit their central importance. Specifically, this means that world governments will need to intervene forcefully in the current economic crisis with both fiscal stimulus and direct measures to stimulate lending—to restore some of the confidence that the crash has sapped.
The American Prospect - Robert Kuttner
In saluting Keynes' quip, Akerlof and Shiller argue that much of the story is in the unreliability and incompleteness of supposedly rational behavior—the micro-foundation of the free-market model. They contend that modern economics, even self-described Keynesian economics, has given short shrift to this core behavioral insight. . . . Their best chapter is on the limited capacity of central banks to prevent or cure calamities.
Edmonton Journal - Brad Willis
Animal Spirits is succinct, clear and lively.
The Age - Tim Colebatch
In an intriguing new book, Animal Spirits, US economists George Akerlof and Robert Shiller argue that psychology plays a far bigger role in determining economic outcomes than economists realize—and that, broadly speaking, people get what they expect. If we think good times are ahead, we act confidently in a way that creates them. And if we expect a downturn ahead, we act defensively and unwittingly ensure that's what we get.
Shanghai Daily - Wan Lixin
The authors are right in pointing out the inadequacy of conventional economics in understanding, not to say addressing, today's economic woes, because they fail to take into account these animal spirits.
Delta Sky - Gene Rebeck
[Animal Spirits] is a short, thoughtful and sometimes simplistic book that calls for a different vision of economics. . . . Animal Spirits may well be a GPS system for a changing economic future.
The Business Economist - Richard Bronk
Animal Spirits presents a rigorous case for the importance of 'confidence multipliers' and 'stories' in explaining recent market behaviour and of 'fairness' and 'money illusion' in preventing wages from falling in recessions to the market-clearing rate. Written in an accessible style, the book provides a very useful practical primer for policy-makers, practitioners and academics on many aspects of the current crisis. The authors also make a compelling theoretical case for macroeconomists taking more account of the role of non-economic motives and irrational responses.
Times Higher Education - Natalie Gold
[T]he authors do a superb job of conveying the importance of bevaioural economics to a non-specialist audience. They increase our understanding of recent economic events and they show that animal spirits affect how governments should manage the economy.
JASSS - Andreas Ernst
[T]his very book seems to be one of the 'must-reads' in the Obama administration.
Investment Professional - Thomas H. Wilkins
Ideologists are likely to dismiss this volume. However, for other readers—whether their perspectives are quantitative or qualitative—Animal Spirits may fill a troubling gap in existing investigations of the causes of booms and busts.
Midway Review - Dmitri Leybman
Akerlof and Shiller's book is an interesting and thought-provoking attempt to understand how underlying human psychology drives the economy. The questions they pose and the examples they provide should be read by any economist seeking to better understand the differences between what economics predict will occur, and how people actually behave as individuals and within larger groups.
Wilson Quarterly - Nick Schulz
Animal Spirits, which attempts to leverage the insights of behavioral economics to reanimate the vision of John Maynard Keynes, is perfectly timed for the present moment.
Time
Animal Spirits [is] . . . the new must-read in Obamaworld.
— Michael Grunwald
Challenge
A reader would be right in thinking that Animal Spirits is an especially appealing but provocative appetizer that stimulates the interest of unorthodox and anti-orthodox economists everywhere to rewrite macroeconomics as if humans beings with their messy emotions, group dynamics, and all the rest really exist. Readers will also find Animal Spirits an invitation for society to ignore new classical economics in the interest of effective and decent economic policy.
— Marcellus Andrews
Financial Times
An influential Democrat who was also one of the world's top-ten, highest-paid hedge fund managers last year thinks he knows which book is at the top of the White House reading list this spring: Animal Spirits, the powerful new blast of behavioural economics from Nobel prize-winner George Akerlof and Yale economist Robert Shiller.
Time.com's Swampland
White House Budget Director Peter Orszag is a numbers guy, a propeller head as President Obama would say. But as David Von Drehle and I write in this week's print version of Time, Orszag has been spending his time recently reading not about spreadsheets, but about psychology. In particular, he has been reading a new book by the economists George Akerlof and Robert Shiller called Animal Spirits: How Human Psychology Drives The Economy, and Why It Matters For Global Capitalism. . . . We are, it turns out, slaves to the Animal Spirits. They have brought us to our knees. And now they are the only things that can save us.
— Michael Scherer
Money Science
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.
Louis Uchitelle
Until now, behavioral economics has focused mainly on a variety of disparate traits that chip away at the assumption of rationality embedded in mainstream theory. A young person, for example, fails to join a 401(k) plan, even one subsidized by his employer, although if he were rational and fully informed, he would certainly sign up. What Akerlof and Shiller do is to highlight this sort of finding, packaging it with numerous other psychological insights into a half-dozen broad maxims that permanently alter the concept of rational behavior. And their book takes their case not just to economists, but also to the general reader. It is short (176 pages of text) and easy enough for laymen to understand (most of the time).
—The New York Times
Economic & Political Weekly - Romar Correa
George Akerlof and Robert Shiller have offered an attractive road map for a macroeconomics that might be inspired by the recent financial crisis.
Journal of General Management - Kristina Vasileva
I believe this book to be best suited for those individuals who come from different fields but have a keen interest in economics and finance.
Perspectives on Politics - John P. Moran
It is perhaps the ultimate compliment to suggest that Russia's greatest writer would very much have agreed with Barany's depiction of the Russian military—and that his approach is a superior one for understanding Russian military politics.
Journal of Global Analysis - Stan C. Weeber
More important than the timeliness of the book was the legacy that it leaves behind. This book helps us to understand as never before how macroeconomics really works.
Eastern Economic Journal - Martin Rapetti
Akerlof and Shiller deserve at least two cheers—one for providing a more solid psychological foundation for our understanding of confidence and another for re-introducing such an important concept into mainstream macroeconomics.
Economic & Political Weekly
George Akerlof and Robert Shiller have offered an attractive road map for a macroeconomics that might be inspired by the recent financial crisis.
— Romar Correa
Journal of General Management
I believe this book to be best suited for those individuals who come from different fields but have a keen interest in economics and finance.
— Kristina Vasileva
Perspectives on Politics
It is perhaps the ultimate compliment to suggest that Russia's greatest writer would very much have agreed with Barany's depiction of the Russian military—and that his approach is a superior one for understanding Russian military politics.
— John P. Moran
Journal of Global Analysis
More important than the timeliness of the book was the legacy that it leaves behind. This book helps us to understand as never before how macroeconomics really works.
— Stan C. Weeber
Eastern Economic Journal
Akerlof and Shiller deserve at least two cheers—one for providing a more solid psychological foundation for our understanding of confidence and another for re-introducing such an important concept into mainstream macroeconomics.
— Martin Rapetti
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Product Details

  • ISBN-13: 9780691142333
  • Publisher: Princeton University Press
  • Publication date: 1/29/2009
  • Pages: 264
  • Sales rank: 819,249
  • Product dimensions: 6.40 (w) x 9.30 (h) x 0.90 (d)

Meet the Author


George A. Akerlof is the Daniel E. Koshland Sr. Distinguished Professor of Economics at the University of California, Berkeley. He was awarded the 2001 Nobel Prize in economics. Robert J. Shiller is the best-selling author of "Irrational Exuberance" and "The Subprime Solution" (both Princeton). He is the Arthur M. Okun Professor of Economics at Yale University.
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Table of Contents

Preface vii
Acknowledgments xiii
Introduction 1

Part One: Animal Spirits
Chapter One: Confidence and Its Multipliers 11
Chapter Two: Fairness 19
Chapter Three: Corruption and Bad Faith 26
Chapter Four: Money Illusion 41
Chapter Five: Stories 51

Part Two: Eight Questions and Their Answers
Chapter Six: Why Do Economies Fall into Depression? 59
Chapter Seven: Why Do Central Bankers Have Power over the Economy (Insofar as They Do)? 74
Postscript to Chapter Seven: The Current Financial Crisis: What Is to Be Done? 86
Chapter Eight: Why Are There People Who Cannot Find a Job? 97
Chapter Nine: Why Is There a Trade-off between Inflation and Unemployment in the Long Run? 107
Chapter Ten: Why Is Saving for the Future So Arbitrary? 116
Chapter Eleven: Why Are Financial Prices and Corporate Investments So Volatile? 131
Chapter Twelve: Why Do Real Estate Markets Go through Cycles? 149
Chapter Thirteen: Why Is There Special Poverty among Minorities? 157
Chapter Fourteen: Conclusion 167

Notes 177
References 199
Index 219

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Customer Reviews

Average Rating 3.5
( 21 )
Rating Distribution

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(9)

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See All Sort by: Showing 1 – 20 of 21 Customer Reviews
  • Posted December 5, 2010

    more from this reviewer

    Not for beginners

    I expected Animal Spirits to be 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, 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.

    2 out of 2 people found this review helpful.

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  • Posted November 16, 2009

    more from this reviewer

    A fresh perspective

    Akerlof and Schiller give us a fresh look at Keynesian applications which might help us to find solutions to our current economic problems. The greater understanding they bring to the discussion should help us to approach these solutions with less fear.

    2 out of 4 people found this review helpful.

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  • Posted August 1, 2009

    Psychobabble & Collectivism

    The usual collectivist, warmed over Keynesian thinking that has never worked. This is another re-writing of history and a weak attempt to smooth over FDR's turning a weak depression in to a deeper one only to survive because Hitler invaded Poland and all productive economies, but the U.S., were virtually destroyed.

    Throw in the Ivy League Psychobabble and you get an intellectual dishonest attempt to cast dispersions on the rational economic theory of rewarding productivity and individuality. This is the type of thinking that has sent the U.S into becoming a second rate economic power as, unfortunately, their thinking holds credence in a government that has designed a legal system that destroys incentive. Much to the authors chagrin and disappointment there are absolutes whether they wish to acknowledge them or not.

    Although I thank the academics, politicians and bureaucrats for having my children pay for my health care at the same time I have to apologize to my children for allowing what has happened to this country and the debt they have inherited. The authors seem to think this debt is only psychological.

    Does any serious, honest person believe that such a system of rewarding consumptive parasites can produce a productive middle class? The entitlement generation wants to make money, not earn it; have a job, but not work. They confuse Crony Capitalism with Free Enterprise which aids and abets the collectivists.

    Unfortunately the authors get paid to teach this nonsense. Only on campus would they get a steady pay check. They should give the proceeds from this book to the Veterans of Foreign Wars, VA or American Legion to recompense for the damage they are trying to inflict on a country many have fought and sacrificed for.

    2 out of 8 people found this review helpful.

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  • Posted April 20, 2009

    more from this reviewer

    Rethinking economics' fundamental principles

    Nobel laureate George A. Akerlof and prescient Yale economics professor Robert J. Shiller explain the role of human psychology in markets. They say conventional economic theory assigns too much weight to the role of reason in economic decision making, and too little to the role of irrational emotional and psychological factors. That insight would have been novel a few years back, but numerous other authors have made the same point, though few with such sterling credentials. Having asserted their beliefs and offered evidence about the power of emotions, or "animal spirits," the authors prescribe curative policies though they don't always illuminate their proposals' full real-world impact. Akerlof and Shiller's distinguished reputations command attention, and getAbstract confirms that their book is worthwhile reading. Yet, those who know the authors' bodies of work may wish for even more insight.

    1 out of 4 people found this review helpful.

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  • Anonymous

    Posted July 4, 2014

    THE LOST TRIBES SEASON 2 PART 13

    In writing for Tuesday after next week.

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  • Posted August 15, 2012

    This was not what I thought it was.

    Archived it immediately.

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  • Posted February 28, 2010

    more from this reviewer

    A Book for all Undergraduate Economists and anyone who wants to understand often ignored factors that really impact the economy.

    Well written and intelligent discussion that non-economists and economists alike can understand. Written in terms anyone can understand, yet this book should have been required reading before I received my undergraduate degree in economics.

    Was this review helpful? Yes  No   Report this review
  • Posted February 6, 2010

    Disappointingly Thin

    Quick, easy read--making the case that human irrationality and group dynamics drive market valuations, not fundamentals. As the authors make clear, this line of thought has been around a long time. Many examples of animal spirits driving markets are presented.

    So, the book dismantles the idea that markets are efficient and rational. No predictive model is given as a replacement.

    A better read with more interesting historical detail is Niall Furguson's Ascent of Money. One achieves the same result along a much more interesting path.

    Was this review helpful? Yes  No   Report this review
  • Posted August 26, 2009

    I Also Recommend:

    Excellent read

    Human nature often collide with logic and reason. Akerlof and Schiller explore this issue in their excellent book and show that animal spirit can result in unexpected economical downturn and financial hardships. As the authors conclude, the effect of the animal spirit could be offset by tighter regulation and little nudge that can have positive impact on human behavior.

    0 out of 1 people found this review helpful.

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  • Posted April 20, 2009

    more from this reviewer

    EXCELLENT READING

    Very informative book. It provides an excellent overview of the current and historical economic stresses for the individual who is not well versed in economics. As a person who has very little education in economics (only class was in high school,40 yrs ago) I was very pleased with the presentation.

    0 out of 1 people found this review helpful.

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  • Posted March 24, 2009

    more from this reviewer

    Ideas and Feelings Counterbalancing Rationality and Efficiency in Economic Matters

    George Akerlof and Robert Shiller convincingly demonstrate that people's ideas and feelings (their animal spirits) play an important role in understanding significant economic events. Economic decisions are not based solely on rational, efficient behavior.

    Akerlof and Shiller first explore the five different aspects of the animal spirits. The authors call them confidence, fairness, corruption and bad faith, money illusion (failure to add inflationary expectations into wage bargains and price setting), and stories (narratives).

    After exploring these five aspects, Akerlof and Shiller examine how animal spirits have an important impact on a variety of economic factors such as unemployment rate, inflation rate, savings rates, stock prices, real estate prices, and multigenerational poverty among disadvantaged groups. The feedback loops that animal spirits create, help explain among other things why globalization to this day remains excessive and unstable.

    To their credit, Akerlof and Shiller usually write in a style that makes complex concepts accessible to a wide audience. Whoever wants to know more about specific topics that both authors address, can look at the chapter notes and comprehensive references that are reproduced at the end of "Animal Spirits."

    0 out of 1 people found this review helpful.

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    Posted June 13, 2010

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    Posted October 27, 2009

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    Posted December 27, 2009

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    Posted August 19, 2011

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    Posted January 25, 2010

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    Posted December 24, 2009

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    Posted March 30, 2011

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    Posted May 20, 2011

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    Posted July 25, 2011

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