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

Beyond Hands Visible or InvisibleIn close to forty years of my research, advising, and teaching globally, I have read and reviewed many very interesting and paradigm-changing books in economics and management. However, this book is one of a kind!The book is nothing short of a revolution in how we think about economics and the real (global) economy in general. While the standard economic theory, rooted in the Adam Smith classical work, sprung up mainly from two abstract, simplified, and rather static ideas of Rational Expectations (RE) and Efficient Market Hypothesis (EMH), the powerful source of the Akerlof & Shiller story is the living and changing organism of the increasingly global economy; the Authors concentrate on the macroeconomic aspects, especially as they apply to the Great Recession started in 2007-8.Critical to the analysis is the observation that RE and EMH approaches utterly fail to explain the great majority of the economic phenomena, incl. the current Great Recession in the US and globally; this (earlier) sweeping assertion is not even controversial in 2012. The reason it is so is that these standard economic theory approaches completely fail to account for the operation of "animal spirits", a term dating back to John M. Keynes. Animal spirits are our interpretations of economics and the economy, our mental/psychological forces and constructs, spiritus animalis from the original Latin. They include: (non)confidence (with its Keynesian style multipliers), the issue of fairness in wage determination and other areas, corruption and bad faith phenomena in the society (so pertinent in this Great Recession), money illusion that people usually operate under (inflation vs. deflation), and stories that are our practical and simplified ways of thinking/telling/teaching about the economy and economics.The answers to the eight basic questions in economics crucially depend on the animal spirits: Why do depressions occur? Why do central banks have real powers? Why do we have involuntary unemployment? Why is there a long-run tradeoff between inflation and unemployment? Why is saving so variable? Why do stock markets fluctuate so wildly? Why are the cycles in the housing market so large? And why is there continued minority poverty?Very importantly, the book highlights frames of modern government roles in strategic management of the animal spirits for the benefit of our knowledge and our economy.Even if (as some would retort) animal spirits cannot be modeled yet to produce empirically relevant outcomes (qualitative, quantitative, combined, etc) on the individual level or the aggregate level, it is probably only a question of a relatively short time before we can do so using new frontier research like neuronomics, business ethics, knowledge management, etc, to extend our knowledge.The book is a great and compelling proposal for a new economic thinking, and a very practical one at that. Some three years ago I adopted Akerlof & Shiller as the textbook for my MBA and Executive MBA teachings, incl. online teachings. My students (mostly adult professionals) provided lots of un-trivial opinions on how I was able to teach this new economic thinking and practically frame the animal spirits analysis for actionable understanding of the 21st century global economy.The Akerlof & Shiller book is best used as the text for graduate level courses. I look forward to the second edition of this book; and an online teaching companion would be very useful for students and teachers alike.Very powerful story, one of a kind indeed!Val SamonisThe Web Professor of Global Management(SM)SEMI Online, Toronto and globally

The main idea of this book is that, when it comes to economics (both micro and macro), individual and group psychology matters a lot. This means that economic models based on assumptions of rational agents and efficient markets are incomplete at best and misleadingly inaccurate at worst.Akerlof and Shiller propose five key psychological factors, the most important being confidence (or lack thereof) in the economy and one's personal place in it. The other four factors are perception of economic fairness, perception of corruption (and actual corruption!), understanding of the effects of inflation (money illusion), and the narrative stories we tell in order to interpret our economic past, present, and future. The effects of all of these factors are generally amplified by feedback processes. I believe the authors are essentially correct in their analysis. After all, if you have bad feelings about the economic situation, you'll be reluctant to consume and hire. When a lot of people feel the same way, aggregate consumption and hiring will drop, and a drop in aggregate production must follow.Akerlof and Shiller next apply these factors in order explain why depressions occur, how central bankers can influence the economy, why unemployment occurs, why people don't save properly, why investments are volatile, why real estate markets go through cycles, why poverty is more common among minorities, and, most pressing, what should be done about the current financial crisis. In this last regard, their answer is that the government must actively restore confidence and a sense of fairness, regulate markets to control corruption and prevent bubbles and busts, and manage banks to ensure adequate supply of credit. I agree, and this is largely what the Obama administration is doing, though they need to do more of it.My main criticism of the book is that, while the writing is elegant and engaging at the level of sentences and paragraphs, the writing is somewhat unfocused and repetitive at the level of sections, chapters, and the overall book. This reduces clarity and unfortunately obscures the chains of reasoning in the book. A lesser criticism is that the authors apparently don't realize that Adam Smith was aware of most of the factors they mention and the consequent need for government intervention; the problem is that those who have appropriated Smith's ideas have ignored those aspects.Nevertheless, the bottom line is that this is an important book because it offers an accurate diagnosis and sensible solution for our current economic problems, so I recommend it, especially to people involved in formulating and implementing economic policy.

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In "Animal Spirits" nehmen Akerlof und Shiller eine Theorie von John Maynard Keynes auf und erforschen diese tiefergehend. Animal Spirits sind dabei die tierischen Züge im menschlichen Wesen, die sonst nicht rational erklärt werden können. Zudem werden diese auf die Wirtschaft angewandt.Das Buch ist einfach und verständlich geschrieben, sodass auch Laien hier auf ihre Kosten kommen, sofern man sich natürlich für das Thema interessiert. Der Preis dafür ist absolut gerechtfertigt.Wie aus meiner Rezension deutlich wird, bin ich ein riesen Fan von Shiller und habe bereits andere Bücher von ihm gelesen. Animal Spirits reiht sich in diese Reihe an Meisterwerken nahtlos ein!

Es un enfoque muy interesante sobre el comportamiento humano en la economía. Es una corriente que no solo está de moda, sino que ofrece explicaciones muy sugestivas sobre el funcionamiento de la sociedad.

Great read.Interesting thesis.

The paper quality is amazing.