Animal Spirits Review

I recently found a good review on Schiller and Akerlof's Book Animal Spirits, from Michelle Baddeley:


"On opening Animal Spirits, you might expect an analysis with roots in either Galen or Keynes. Although Akerlof (a Nobel laureate in economics at the University of California, Berkeley) and Shiller (an economist at Yale University) hail Keynes as their hero, their animal spirits are a broader and more diffuse phenomenon than his. They define five animal spirits: confidence, fairness, corruption (bad-faith behavior), money illusion (confusion about the effects of inflation and deflation), and storytelling (narratives that shape our sense of who we and others are). So while their analysis does not always fit neatly with a fundamentalist interpretation of Keynes, it does resonate with the growing field of behavioral economics. Moreover, they use animal spirits to take behavioral economics from the microeconomy to the macroeconomy to explain a range of macroeconomic phenomena, including financial crisis, depression, and involuntary unemployment.





Economists typically avoid psychological and sociological models because they find them too arbitrary and too difficult to quantify. Overall, Akerlof and Shiller advocate a move away from this antipathy. Animal Spirits “is a book about macroeconomics,” but this is its principal problem. It is built on a foundation of findings from a behavioral microeconomics. Although behavioral economics can capture individual decision-making in an experimental context, at an aggregate level the interactions among people are too complex to provide the evidence needed to properly verify theories of behavioral macroeconomics. The authors therefore emphasize the importance of history and stories and of qualitative alongside quantitative analyses. However, the problem remains that their theory is difficult to falsify. That said, economics is often criticized for its practically misleading emphasis on theoretical precision. So it is refreshing to see two such influential economists advocating a shift toward a broader, more intuitive, interdisciplinary approach."


Here the link to the full review:


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