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

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

by George A. Akerlof, Robert J. Shiller


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

The global financial crises of recent years have made it painfully clear that psychological forces can imperil the wealth of nations. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" drive financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller present a serious alternative to the standard economic theory that has failed to account for these essential human factors, and provide a radical new way to think about the economy.

Looking back to the prevalent despondence preceding the Great Depression and the changing psychology that accompanied recovery-which led John Maynard Keynes to coin the term "animal spirits"-Akerlof and Shiller reassert the necessity of an active government role in economic policymaking. In a new preface, they describe why our economic troubles may linger for some time-unless we are prepared to take further, decisive action.

Product Details

ISBN-13: 9780691145921
Publisher: Princeton University Press
Publication date: 02/21/2010
Edition description: With a New preface by the authors
Pages: 256
Sales rank: 778,790
Product dimensions: 5.40(w) x 8.10(h) x 0.90(d)

About 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.

Table of Contents

Preface to the Paperback Edition vii

Preface xxi

Acknowledgments xxvii

Introduction 1

Part 1 Animal Spirits

1 Confidence and Its Multipliers 2

2 Fairness 19

3 Corruption and Bad Faith 26

4 Money Illusion 41

5 Stories 51

Part 2 Eight Questions and Their Answers

6 Why Do Economies Fall into Depression? 59

7 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

8 Why Are There People Who Cannot Find a Job? 97

9 Why Is There a Trade-off between Inflation and Unemployment in the Long Run? 107

10 Why Is Saving for the Future So Arbitrary? 116

11 Why Are Financial Prices and Corporate Investments So Volatile? 131

12 Why Do Real Estate Markets Go through Cycles? 149

13 Why Is There Special Poverty among Minorities? 157

14 Conclusion 167

Notes 177

References 199

Index 219

What People are Saying About This

Diane Coyle

Animal Spirits makes a very timely and significant contribution to the development of a new dominant paradigm for economics that acknowledges the imperfections of human decision making, a need which the panic in financial markets makes all too apparent. I am not aware of any other book like this one.
Diane Coyle, author of "The Soulful Science: What Economists Really Do and Why It Matters"


Akerlof and Shiller explore how animal spirits contribute to the performance of the macroeconomy. The range of issues they cover is broad, including the business cycle, inflation and unemployment, the swings in financial markets and real estate, the existence of poverty, and the way monetary policy works. This book is provocative and persuasive.
George L. Perry, Brookings Institution


This book is dynamite. It is a powerful, cogent, and convincing call for a fundamental reevaluation of basic economic principles. It presents a refreshingly new understanding of important economic phenomena that standard economic theory has been unable to explain convincingly. Animal Spirits should help set in motion an intellectual revolution that will change the way we think about economic depressions, unemployment, poverty, financial crises, real estate swings, and much more.
Dennis J. Snower, president of the Kiel Institute for the World Economy


This book is a sorely needed corrective. Animal Spirits is an important—maybe even a decisive—contribution at a difficult juncture in macroeconomic theory.
Robert M. Solow, Nobel Prize-winning economist

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Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism 3.7 out of 5 based on 0 ratings. 21 reviews.
The_hibernators More than 1 year ago
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.
Anonymous More than 1 year ago
In writing for Tuesday after next week.
lynnelondon More than 1 year ago
Archived it immediately.
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BruiserMD More than 1 year ago
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.
Econo More than 1 year ago
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.
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GFF More than 1 year ago
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.
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hrizk More than 1 year ago
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.
jakeCL More than 1 year ago
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.
sergevansteenkiste More than 1 year ago
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."
RolfDobelli More than 1 year ago
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.
PrudentMan More than 1 year ago
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.