Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof

Sep 30, 2011 Gordon rated it 5 of 5 stars

The phrase “animal spirits” comes from John Maynard Keynes, the great British economist, who saw the role of emotion and irrationality as looming large in economic behavior. As Akerlof and Shiller see it, Keynes had it right, but the neo-Keynesians who followed him watered his theories down to conform more closely with the “invisible hand” classical economics of Adam Smith. So what we were left with was a model of rational economic decision-making, where every consumer and businessperson careful...more The phrase “animal spirits” comes from John Maynard Keynes, the great British economist, who saw the role of emotion and irrationality as looming large in economic behavior. As Akerlof and Shiller see it, Keynes had it right, but the neo-Keynesians who followed him watered his theories down to conform more closely with the “invisible hand” classical economics of Adam Smith. So 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.

Adam Smith too had a theory that was mostly right, but could not explain the dysfunctions of economies – such as why unemployment rose to 25% during the Depression, and stayed there for years. Why didn’t workers simply cut their wage demands to a level that employers were willing to pay? In Smith’s model (created in the 18C), economies were supposed to naturally find their equilibrium point at, or very close to, full employment. Unlike Smith, Keynes had the benefit of the Great Depression staring him in the face when he wrote his book in the mid-1930’s, and he knew that model didn’t always work. The solution: have government step in and use heavy deficit spending to pump up demand and drive down unemployment.

Then, along came Milton Friedman in the 1970’s, in the midst of the raging inflation of that decade. With his stress on bringing down inflation by controlling the money supply, and allowing markets to operate freely, and his assertion that “government was the problem”, Keynesianism took a back seat. Ronald Reagan and his acolytes took Friedman’s view, added a dose of supply-side “voodoo economics” – cut taxes and deficits will somehow disappear! – and became the hero of the Republican party. At least, he became the hero after the US got over its painful recession in 1981-82. Reagan was a master story-teller and his story became the dominant story. As Akerlof and Shiller see it, “Great leaders are first and foremost tellers of stories”. They go further and say that, “The stories no longer merely explain the facts; they are the facts.” The Reagan-Friedman story was so strong it even survived the S&L crisis that caused the failure of hundreds of S&Ls in the 1980’s, brought to their knees by the de-regulation of that industry, combined with a strong dose of executive shenanigans.

Fast forward to the recession of 2008-2009. The authors look at the roots of the recessions and depressions of the previous 120 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. These are:

• Stories: Stories have great power to drive economies. In the 1990’s, it was the New Economy created by the Internet, that was supposed to re-write the rules of business. Price/earnings ratios soared to 100:1 and beyond. The dot-coms took a very hard fall, most of them never to rise again. In the 2000’s, it was the “you can’t miss with real estate” story, followed by the great housing crash of 2008, which still continues today. It’s not clear what the next great story will be – clean tech?

• Fairness: Economists use too simple a model of how people enter into buying and selling transactions exchanges. Fairness is central to how exchanges really work. Think of the classic experiment with two people who have to split $100 – with one person defining how much of the pot each of them will get, and the other person deciding if the deal is acceptable or not. If it’s rejected, neither of them gets anything. In conventional economic thinking, any amount of money is better than nothing, and ought to be accepted. Yet people will routinely reject offers seen as “unfair”, even if it costs them money. We are hard-wired for a fairness ethic – at least where fair exchange is concerned. This appears to be a cultural universal.

• Corruption and Bad Faith: Anytime there is a great mania, corruption will come to light when the air starts to come out of the bubble. Or, as Warren Buffett put it, “When the tide goes out, you find out who’s been swimming without a bathing suit.” It looks like Madoff will be the pre-eminent naked swimmer of this recession, but he was in good company. 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. Example: 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. Not only were mortgage lenders largely unsupervised, so were the near-banks (hedge funds, investment banks …) who took those sub-prime mortgages, repackaged them as derivatives to miraculously make the risk “disappear”, and peddled them to investors around the globe.

• Confidence: 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 2008.

• The Money Illusion: Give people a choice of, on the one hand, having their salary rise 10% with prices rising 10% at the same time or, on the other hand, having their salary and prices both stay the same, people will always go for that 10% “raise”. 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.

Overall, this is the best and most comprehensive book I’ve read so far on the sea change in economics that has been taking place during and in the wake of the two great economic boom / busts of the past dozen years. Shiller’s 2008 book, The Sub-Prime Solution, is also a great read, though more narrowly focused.
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Jan 14, 2013 Joel rated it 4 of 5 stars

This book is a qualitative/non-technical discussion about what is currently being debated in Macroeconomic theory. There have been several posts on different boards about this book taking a "liberal" position. If you're interested in Economics as a science, ignore them. If you're looking for a book that will bring redemption to Reagan-era supply side economics, this is not the book for you.

Akerlof and Shiller are notorious advocates of Keynesian thought. Not because of some underhanded desire to...more This book is a qualitative/non-technical discussion about what is currently being debated in Macroeconomic theory. There have been several posts on different boards about this book taking a "liberal" position. If you're interested in Economics as a science, ignore them. If you're looking for a book that will bring redemption to Reagan-era supply side economics, this is not the book for you.

Akerlof and Shiller are notorious advocates of Keynesian thought. Not because of some underhanded desire to allow government to intrude in our lives, but because Keynes believed in taking account of the qualitative and intangible aspects of human behavior. Admittedly, (as a side note) they do refer to some of Milton Friedman's conclusions as naive. This can be irritating, if you're a strict monetarist. But they also don't go easy on some of Keynes' assumptions.

Current Economic thought is a science of optimization. Akerlof and Shiller are not suggesting an abandonment of mathematics in Economics, but advocate the inclusion of psychological probabilities. What they suggest is that humans do not have access to perfect information, nor do they act in an entirely rational matter.

Anyone who has taken a single class in sociology or psychology will instantly realize the "no duh" factor from this concept. But in Economics, the technology to quantify these probabilities on a Macroeconomic scale is relatively new. Akerlof and Shiller have stumbled upon a premise that has haunted mainstream economists for forty years and has been a driving force in Austrian Economics for even longer: Humans are not entirely rational creatures with solely economic motivations...a devastating shock to macroeconomists everywhere.

In the end, their conclusions are modern and well-thought out. Behavioral and Experimental economics appears to be the next evolution in Economic theory. You may not like their conclusions as it relates to policy, yet the premise of expanding theory to include those factors once deemed as "intangible" or "irrational" cannot be understated.(less)

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Jan 25, 2012 Tim rated it 4 of 5 stars

If you want to know why the economy works the way it does - this is the book for you. You are not the "rational man" that economists think you are, none of us are. And if you want to understand why they think that way, and how it screwed up our economy this book will help.

Details:
Akerlof and Shiller are great economic thinkers who systematically approach economics from the ground up, and focus on how our "animal spirits" affect the economy. It is very well-written, engaging and easy to read.

I pa...more

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Dec 22, 2011 Dan rated it 3 of 5 stars

Shelves: 2011

This was a nice overview of what I'd call New Old Keynesian economics (as opposed to old New Keynesian economics). Schiller and Akerlof are essentially arguing that non-quantifiable "animal spirits" are extremely important in determining the status of an economy, and that much economics since Keynes has neglected his key insight on animal spirits. I found myself nodding in agreement at a lot of the arguments in this book, particularly those about the failure of economists to account for human ps...more This was a nice overview of what I'd call New Old Keynesian economics (as opposed to old New Keynesian economics). Schiller and Akerlof are essentially arguing that non-quantifiable "animal spirits" are extremely important in determining the status of an economy, and that much economics since Keynes has neglected his key insight on animal spirits. I found myself nodding in agreement at a lot of the arguments in this book, particularly those about the failure of economists to account for human psychology and human diversity in their explanations, and their overreliance on mathematical modeling. They also did a pretty solid job providing background on the financial collapse.

With that said, I had some problems with it. First off, there were a few questions that I do not believe that the book sufficiently answered:

1. Why do we assume that reduced aggregate demand is irrational? The authors briefly mentioned how corporate investment might drop off with lower stock prices, but did not mention how the destruction of wealth caused by the housing bubble may be playing a role in people's decisions not to spend money. (My contention is that American consumers were spending way above what could be sustained, and that it will take time for consumers to reach a more reasonable spending level.)
2. Why is stopping a recession a role for government? What if economies need recessions for stability or for creative destruction?
3. Why do you believe that government regulators can stay ahead of financial wizards?
4. Do "successful" interventions have long-term negative repercussions? Why aren't these considered?

Additionally, I felt that the book had a tendency to build right-wing straw men. I suppose there are some strict libertarians on the right that would argue that any government interference in the economy is a bad thing, but most that I have read acknowledge that there needs to be SOME regulation. The argument is one mostly of degree.

Lastly, I think that they engaged with the wrong economist. Milton Friedman was the stand-in for right-wing economics; if you look in the index, you'll see that Friedman appears on xxii, 26, 43-47, 48, 61, 107, 113-14, and 160. Indeed, I think that the authors see economics as a battle between Keynes and Friedman, with the wiser Keynes emerging supreme. But two economists have far more currency these days on the right: Joseph Schumpeter and F.A. Hayek. Schumpter appears once (62). Hayek never appears. Hayek has obviously made something of a comeback over the past few years, and I suspect that the authors probably never would have anticipated his reemergence. But they never engage with Hayek's arguments about interest rates and malinvestments, even though Hayek's theories (and the Austrian school in general) have a pretty good record as far as predicting the crash. I think this was an oversight. (Check out Tyler Cowen from 2005: http://marginalrevolution.com/margina....)

Altogether, it's a book worth reading in order to get that New Old Keynesian perspective. But I can't say that I'm convinced.(less)

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Apr 28, 2011 Josh Meares rated it 3 of 5 stars

Animal Spirits is a cheesy name for a good book. "Animal spirits" is a Keynesian term used to describe the effects of human psychology on the market.

Akerlof correctly shows how current economic thinking, in particular the Chicago school, over-simplified mass behavior by assuming that all individuals behave as if they were rational economic actors. The truth is that humans are rational actors, but their motivations are not all economic. Akerlof examines five important psychological elements that...more Animal Spirits is a cheesy name for a good book. "Animal spirits" is a Keynesian term used to describe the effects of human psychology on the market.

Akerlof correctly shows how current economic thinking, in particular the Chicago school, over-simplified mass behavior by assuming that all individuals behave as if they were rational economic actors. The truth is that humans are rational actors, but their motivations are not all economic. Akerlof examines five important psychological elements that economists should take into account: fairness, confidence, corruption, stories, and money illusion. Money illusion is how Akerlof describes the human inability to perfectly picture money in terms of real goods and services (most importantly, the effects of inflation/deflation). The examination of these psychological elements is the best part of this book. Corruption could probably be collapsed under the heading "fairness", but other than that, the explanations are well thought out. These definitely seem to be weaknesses in current economic theory.

The problem with the rest of the book is that it assumes that proving Keynes' understanding of economics necessitates using Keynes' solutions to economic problems. For example, Akerlof believes that human psychology plays an important role in human economic activity to the disadvantage of the person. But he only even mentions one solution: better government programs that take this weakness into account. But won't those programs be infected by the same diseases? If not, why isn't education of the public an option? We teach economics for 1 semester, typically the last semester of the senior year. Why not include economics/monetary thinking as a foundation of public schooling like reading, writing, math, and science? But Akerlof merely identifies problems with current theory, and then assumes that the solution is better management by the government. What about all the problems that come in with managing a super-complex system through a bureaucratic process? In addition, I think that Akerlof misses key components in his analysis of the meltdown, most notably the fact that every major western government in the world has been going deeper and deeper into debt every year for 40 years. Surely that has to have had some effect on the credit crisis. But the solution is safer, more regulated credit, not adopting business models that rely on less credit.

The other part of this book that I really liked was the discussion of the cultural values of spending and saving in the United States as opposed to East Asia. China saves 20% of GDP. United States saves 0%, and actually negative lately. Singapore was saving at %50 for decades. In Akerlof's view, this saving was crucial to their economic growth. For more own part, I imagine that this is only true if some other nation is willing to spend the money to purchase the products generated by this economy (namely, the U.S.). But wouldn't it be nice if the United States started being a saving nation again instead of walking the tightrope between too much credit and just enough credit and hoping that no "liquidity crisis" pulls the rug out from under us?

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Jan 26, 2010 jose coimbra rated it 4 of 5 stars

'Ao mostrar ocmo a economia de fato atua, os autores oferecem algo que a atual teoria econômica não proporciona: apresentam uma teoria que explica de maneira completa e natural como a economia dos EUA e, na verdade, a economia mundial mergulhou na crise em curso. E o que talvez desperte ainda mais interesse: essa teoria estabelece condições para que se compreenda o que precisa ser feita para escaparmos do atoleiro'

'Em sua acepção original, na forma latina antiga e medieval, spiritus animalis, a...more

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Apr 29, 2009 Ed rated it 5 of 5 stars

As someone who trained as an economist and who has been digesting the implications of behavioural economics for economic theory, this book takes the story further: into macro-economics or how the whole economy works. Like the original work of Keynes (not the subsequent simplification), these authors (it is actually by Akerlof who won the Nobel prize for economics AND Shiller who wrote Irrational Exuberance)transform how we should see markets operating effectively. This means with intelligent gov...more

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Apr 20, 2009 getAbstract rated it 5 of 5 stars

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 suc...more

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Jun 08, 2009 Manussawee rated it 3 of 5 stars

Shelves: ecomics-finance

I wanted to give this book a four-star, but I just couldn't. I felt that the book didn't offer anything new to me, even though I shared the same point-of-view as the authors on the topic. It read a lot like graduate level econ textbook, using current economic scenarios as case study.

The book advocated for governmental regulations in the financial industry. The author used the current economic events as well as others to make their points. They argued that regulations would help keep the system m...more

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Jun 24, 2010 Kaput rated it 4 of 5 stars · review of another edition

Recommended to Kaput by: David Lundqvist

Shelves: 2010, really-enjoyed, non-fiction

"Picture a square divided in to four boxes, denoting motives that are economic or non economic, and responses that are rational or irrational.The current model fills only the upper left-hand box; it answers the question: How does the economy behave if people only have economic motives, and if they respond to them rationally? But that leads immediately to three more questions, corresponding to the three blank boxes."

Which this book tries to fill. Slow start, strong finish to this one. Basically i...more

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Mar 10, 2011 kathleen rated it 4 of 5 stars

I listened to this as an audiobook -- for me, it was the best way to get through a lot of material that at times sounded like an economics textbook. That part was the only reason I didn't give this book five stars. I really resonated with the authors' contention that economic events are driven by psychological factors, the "animal spirits," such as money illusion (ie, when we think about dollar amounts over time, we don't take inflation into account), the stories we tell each other about who we...more

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Jan 03, 2013 Will rated it 3 of 5 stars

"'The fundamentals of the economy remain strong.' That cliche is repeated by authorities as they try to restore public confidence after every major stock market decline. They have the opportunity to say this because just about every major stock market decline appears inexplicable if one looks only at the factors that logically ought to influence stock markets. It is practically always the stock market that has changed; indeed the fundamentals haven't.

How do we know that these changes could not...more

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Apr 25, 2009 Jenn rated it 4 of 5 stars

Shelves: read-2009, non-fiction

An interesting -- if overly brief -- take on how psychology/behavior should be considered by policymakers and economists when coming up with forecasts and prescriptions for what to do with our national economy.

The book is short for a reason, I think -- its main point is quite concise. When John Maynard Keynes originally unveiled his theory of economics, he included as a major part of it the idea that the markets are ruled in part by "animal spirits," -- irrational, or at least nearly unquantifia...more

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Oct 31, 2011 Ryan Melena rated it 2 of 5 stars

Shelves: audio-books

I found this book to be a significant disappointment. The only point of interest, for me, was the in-depth discussion of "money illusion" and its affects on our economy. Outside of that, the booked felt jumbled. Despite my natural proclivity to the authors' point of view I felt their arguments were poorly made. Additionally, the book seemed to stray into apologia and misinformation regarding the events that led to the current recession. It perpetuated the "Fannie & Freddie caused the crisis...more

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Dec 27, 2009 Kirstin rated it 3 of 5 stars

I requested this almost 6 months ago from my local library and it finally came in, but now I can't remember why I wanted to read it. It was probably intended for Brian, but since he's in the middle-east, I went ahead and read it. It's a discussion of macroeconomic theory and how our economic choices are driven by irrational "animal spirits" - things like confidence (or lack thereof), fairness, stories, etc. Things that most economic theorists don't take into account. I only understood a very sma...more

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Sep 29, 2011 Mark rated it 4 of 5 stars

Shelves: economics, non-fiction, business

This is an important book, because it explains how some very human psychological tendencies tend to drive the economy -- and in particular to create booms and busts -- that aren't explained easily by rational macroeconomics.

There are some parts that are slow going, particularly (for me) a chapter on "money illusion," which as I understand it is basically people's inability to grasp that money changes in value with inflation and deflation. It might seem that people have an intuitive grasp of thi...more

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Jan 24, 2011 Sagar Jethani rated it 2 of 5 stars

Shelves: finance, history

It was with great anticipation that I looked forward to 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, what I found was a volume which took great pains to destroy a carefully-crafted straw-man: that species of academic economist who, in defiance of common-sense, insists that people behave according to the universal dictates of rational self-interest in every situation, no matter what the e...more It was with great anticipation that I looked forward to 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, what I found was a volume which took great pains to destroy a carefully-crafted straw-man: that species of academic economist who, in defiance of common-sense, insists that people behave according to the universal dictates of rational self-interest in every situation, no matter what the exogenous circumstances happen to be. 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 sterling credentials. George Akerlof won the Nobel Prize in economics in 2001, and 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. Akerlof and Shiller remind me of George Soros, who, similarly, exults in destroying a straw-man which only the most extreme worshiper of 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 and 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 is useful as a 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.(less)

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Mar 14, 2011 Lucas rated it 3 of 5 stars

Shelves: economics, audio

The money illusion section was very good, none of the other economics books I've read have given it as much as attention as it gets here.

I also really liked the chapter on the asymmetrical behaviour of compensation in economic down-turns vs. up-turns, again because the subject wasn't given significant text in other books. The book doesn't explore the solution space much- my first thought is that an progressive proportion of wages should be in the flexible form of stock options in the employers...more

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Aug 02, 2011 Tanja Seppä rated it 3 of 5 stars

Shelves: business

Classical economic theory claims to be based on the rationality of human actions. This is a ridiculous concept, as every layman knows. This books gives a detailed overview of what basic human functions actually have an impact on the economy, and which tend to be completely overlooked. These include confidence and its multipliers, fairness, corruption and bad faith, money illusion and stories. The book then delves into analyze why things go wrong and take depressions from the past as examples bef...more

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Jul 16, 2010 Michael rated it 1 of 5 stars

This book purported to explain the way human emotions drive economics and their role in the Great Recession. The authors attempt to write in a popular style, which only makes things a bit worse. I picked up a few Mental Floss-style intellectual nuggets but generally found this opaque.

Scanning other reviews I see I am in the minority, like Davy Crockett at the Alamo or Butch Cassidy and Sundance, on this. I will go down proudly and alone.

This reminds me I'm starting a list of the most useless p...more

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Feb 24, 2013 Colin rated it 2 of 5 stars · review of another edition

I don't know why I continue to buy to pop-economics books since they always leave me feeling like I've wasted my time. This one isn't the worst I've read but still...
It's a slice of Keynesian bandwagon-jumpage, rushed into print last year when the great man was briefly in vogue, but unfortunately their take on Keynes is a ludicrous caricature (as is their take on Adam Smith, for that matter). They've thrown in a few anecdotes of economic believe-it-or-not to appeal to the people who bought "Fre...more

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Sep 03, 2012 Paola rated it 2 of 5 stars

Shelves: pop-economics, 2012

First of all, the good bits - this book was originally written in 2008, and the 2010 paperback edition preface states:

As we write this in October 2009, we are afraid that the optimism, even if still a bit guarded, reflects an Indian summer. We do not know what lies ahead. We go along with those who consider it a good sign, at the time of this writing, that there are “green shoots” of recovery, and that forecasters are talking about growth of GDP sometime in the near future. It would be far worse

...more First of all, the good bits - this book was originally written in 2008, and the 2010 paperback edition preface states:

As we write this in October 2009, we are afraid that the optimism, even if still a bit guarded, reflects an Indian summer. We do not know what lies ahead. We go along with those who consider it a good sign, at the time of this writing, that there are “green shoots” of recovery, and that forecasters are talking about growth of GDP sometime in the near future. It would be far worse if people were gloomier.
But the Animal Spirits view of confidence, both overconfidence and underconfidence, makes us wary. It tells us that we do not know what lies ahead. And now should be the time when we are making plans for what happens if there are future shocks: if there are future Lehman Brothers, future massive declines in the stock market, yet more unanticipated bankruptcies. In the United States, for example, we fear that neither the Congress nor the Obama administration is now readying the public for the possible necessity of further stimulus packages, or for further dramatic action by the Federal Reserve to support credit markets if that should become necessary.

However, the problem I have with this book is that it tends to sell a viewpoint of how the economy works without presenting enough of the alternative viewpoints (though, as the authors state, they perceive their -neokeynesian - view as a minority view at present).

In a nutshell, and very coarsely, the main view is: people are boundedly rationaly, this is something that the mainstream economic view does not want to know about, but really they should, as "animal spirits" do matter a lot - and they proceed to show how this point of view sheds light on a number of economic issues, from why people cannot find work to why financial markets are volatile.

In the end, however, I don't think they manage to reach their objective, as I think most readers would come away with a picture whereby (macro)economists belong to either of two tribes, one peddling unfettered markets, while the other calls for more geovernment intervention to "save" individuals from the effects of their cognitive shortcomings (saving more for retirement, not fallig for snake oil and the like). This is compounded by (macro)economists being unable to agree on the basics (e.g. is there or is there not a trade-off between inflation and unemployment? Does a natural rate of unemployment exists), so surely the reader is bound to be more baffled after reading this book than before starting it.(less)

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Jul 12, 2009 Dan rated it 3 of 5 stars · review of another edition

Written by two economists from Berkeley and Yale, this book should be worth reading. The basic premise of the book is that Milton Friedman led the economic community astray by his claims that the market moves in an efficient manner in which each actor does what is best for herself economically. The authors point out that Friedman departed from Keynes, who felt that other, non-economic factors also influence the economy. Akerlof and Shiller believe that factors other than purely economic motives,...more

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May 07, 2009 Tony Hunter rated it 5 of 5 stars

When I tutored Macroeconomics in college, my pie-eyed, head-scratching eighteen-year-olds heard the same sentence come out of my mouth at the beginning of each semester:

"Economics is mob psychology."

And now I can point to a Nobel laureate who agrees with me! Read this book. If you want to understand not only why the depressions happen, but why most economists fail to see them coming and why they will miss them again (unless Akerlof and Schiller's thesis is taken seriously) - then read this book.

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Nov 30, 2009 Mel rated it 4 of 5 stars

Shelves: re-think-your-world

A great analysis and explanation of all the noneconomic, non-rational elements that affect motivation and activity... and thereby affect the economy. The authors sharply criticize traditional macroeconomic models for their failure to explain the sharp booms and busts that have always characterized economies and offer alternative explanations and policy prescriptions that more accurately reflect and address actual human behavior. Emphasis is places on the role of fairness, stories, corruption, an...more

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May 05, 2011 David rated it 3 of 5 stars

This book identifies five animal spirits—confidence, fairness, corruption, money illusion, and stories—and identifies these are major contributors to market irrationality that results in large market swings. It doesn’t do a detailed analysis of each spirit, just an overview, and then describes generally the role they play in 8 conditions, such as real estate cycles, savings, depressions, unemployment, and inflation.

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Oct 16, 2012 Mohit Agrawal rated it 3 of 5 stars

A new take on behavioral economics with a particular focus on "macrobehavior": how individual behavior can move in tandem via "confidence" and "stories" and drive business cycles. The material seemed somewhat rehashed, and the lack of data was off-putting.

The book was remarkably integrative (with material from sociology, policy, and other fields) and lays out the challenges of the modern policy-maker.

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Feb 14, 2013 Asa Wilks rated it 3 of 5 stars

Shelves: current-nonfiction

I liked this book a lot. I didnt read the last chapter and a half because I accidentally left it at a Starbucks in LAX. Anything with Shiller is going to be solid, and a good treatment of the behavioral economics implications behind the financial crisis. Still, not nearly as good as Daniel Kahneman's treatment of (mostly) the same stuff - and he was the dude that got the Nobel for it. So there.

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Feb 21, 2011 Deep rated it 2 of 5 stars

This book starts with a good premise - that the idiosyncracies of human/social psychology have an important role to play in determining macroeconomic outcomes - and also provides good elaborations on the premise - via analyzing key open macroeconomic questions through the lens of "animal spirits" - but ultimately disappoints in arriving at a rather vague set of prescriptions (e.g. "Government must set the rules of the game").

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Jul 29, 2011 Nilesh rated it 3 of 5 stars

I found the book quite underwhelming. The point that human beings are not totally rational is quickly made. Even collectively, they are not rational is also well-argued but the rest of the book more or less meanders. Supposed answers to basic questions relies on "irrationality" as the rationale! Whatever that can not be explained with simple logic is attributed to behavioral pitfalls that do not need much rational explanation - with such a logic, answers to almost all questions in any human life...more

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title link	preview: Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
avg rating	preview: Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism Goodreads rating: 3.60 (969 ratings)
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BBCode	[url=http://www.goodreads.com/book/show/6167162-animal-spirits?utm_medium=api&utm_source=blog_book][img]http://d.gr-assets.com/books/1347712043l/6167162.jpg[/img][/url] [url=http://www.goodreads.com/book/show/6167162-animal-spirits?utm_medium=api&utm_source=blog_book]Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof[/url]

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

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