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

3.72  ·  Rating Details ·  3,174 Ratings  ·  131 Reviews
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 ...more
Kindle Edition
Published (first published 2009)
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Hadrian
Although I read this four years ago, I still remember it very clearly.

A summary of the Keynesian 'animal spirits', or non-rational economic actions which people do, sometimes contributing to later economic crises. These include, but are not limited to, Confidence, the myth of fairness, the illusion of money, corruption, and 'Stories' as past explanations of behavior.

These are applied to multiple questions, such as real estate bubbles, central banking, racial discrimination, why recessions happen
...more
Trevor
Part of the reason why I found this book quite so interesting was because I’ve read lots of books about behavioural economics over the years, but they are much more interested in psychology than they are in economics. For instance, a book that I am constantly recommending and even buying for people is ‘Predictably Irrational’ – and it proudly refers to itself as being one set in behavioural economics, but really, you sort of have to squint to see the connection to economics most of the time. Now ...more
Gordon
Dec 12, 2009 Gordon rated it it was amazing  ·  review of another edition
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
Sagar Jethani
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
Ed
Apr 29, 2009 Ed rated it it was amazing  ·  review of another edition
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
Joel
Aug 13, 2009 Joel rated it really liked it  ·  review of another edition
Shelves: economics
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
Lucas
Feb 05, 2011 Lucas rated it liked it  ·  review of another edition
Shelves: audio, economics
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
John Gurney
Jan 10, 2015 John Gurney rated it really liked it  ·  review of another edition
Two Nobel Prize-winning economists, George Akerlof and Robert Schiller, use their version of Keynes's theory of "animal spirits" to explain past financial crises and how economies grow. They have interesting psychological ideas, such as the importance of a national "story", really a paradigm, that drives herd mentality and, thus, irrational behavior. Examples would be the recent, ill-fated real estate mania in the United States or the malaise on the part of business operators in FDR's second ter ...more
Ryan Melena
Oct 06, 2011 Ryan Melena rated it it was ok  ·  review of another edition
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
Tim
Jan 25, 2012 Tim rated it really liked it  ·  review of another edition
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
Patrick
Sep 19, 2013 Patrick rated it really liked it  ·  review of another edition
The dawn of cognitive macroeconomics

JDN 2456563 PDT 15:10.

A review of Animal Spirits by George A. Akerlof and Robert J. Shiller.

When I first came to CSULB about a month and a half ago, we had an orientation for graduate students. One of the faculty members there (Seiji Steimetz, for whom I am now a graduate assistant, and whom I have come to adore) asked us all a question: "What kind of research do you want to be involved in?" Most of the students didn't have an answer. I had an answer I didn't
...more
Karl Nordenstorm
May 21, 2017 Karl Nordenstorm rated it really liked it  ·  review of another edition
Some of the ideas and info:
* People have no idea how much they should save. 1%, 5%, 10%, 50% of savings. They just look at what others do and do that. Meaning savings rates could change suddenly, as a change in fashion, causing reduced spending and a recession. (Fun fact: By various means Singapore forces everyone to save 40% of income)
* Nor do people understand inflation. Most people think inflation will make things hard to afford, they do not get that prices of assets and wages raise together
...more
David Wen
Nov 25, 2016 David Wen rated it really liked it  ·  review of another edition
Great book discussing the benefits and drawbacks of a capitalist economy where the "the invisible hand" is at work. There are many events that occur which fits no model of economic theory and makes the argument that no government intervention is a very poor choice of regulation in where the theory does not apply.
Daniel Wagner
May 05, 2017 Daniel Wagner rated it really liked it  ·  review of another edition
When I learned about macroeconomics it was all supply/demand and tons of formulas. This book points out how many factors related to the human mind has a big impact in economic decisions.
Dan
Dec 22, 2011 Dan rated it liked it  ·  review of another edition
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
Joseph Ballard
Apr 26, 2016 Joseph Ballard rated it really liked it  ·  review of another edition
Shelves: my-bookcase
Animal Spirits should be preliminary reading for all economics courses. Whilst many were writing about the failings of Capitalism before the 08 crash, the urgency of the situation is such that now major rethinking of the role of government in regulating markets is necessary if we are going to avoid this sort of crash again.

The title of this book gives a lot away. It is based on the premise that modern economic theory has become detached from fundamental human psychology and makes extreme conclu
...more
Josh Meares
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
Paola
Jun 11, 2012 Paola rated it it was ok  ·  review of another edition
Shelves: 2012, pop-economics
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
John McDonald
Aug 07, 2015 John McDonald rated it it was amazing  ·  review of another edition
If Shiller and Akerlof have something to say or write, it should be all hands on deck. The insights in this brief and simply written work are the stuff that distinguish those who think they know from those who are in the know and know.

Robert Shiller became famous and respected among the laiety in 2006 and 2007 when he warned that stock market investors should head for the hills, that the uncollectible debt arising from mortgages and collateralized debt instruments was about to implode, and that
...more
Philip
Feb 07, 2014 Philip rated it really liked it  ·  review of another edition
George Akerlof and Robert Shiller are widely respected economists.
This book is about the failure of the standard model of economics to either predict or to cope with the recent housing crisis.

The term “animal spirits” was used by John Maynard Keynes in his 1936 book "The General Theory of Employment, Interest and Money" to describe the instincts and emotions that influence economic behavior.
Keynes said, “There is instability due to … human nature … a large proportion of our positive activities d
...more
Fiona
Jan 07, 2014 Fiona rated it liked it  ·  review of another edition
Shelves: business
Not bad for an economics book. Yes, I said economics. And, no I didn't buy this book; I rented it. My first rental Kindle book.

This is not your typical economic book talking about theories. Economic theories are based on efficient markets and rational people which we all know does not exist in the real world. The authors believe that animal spirits, or human psychology, are really motivates people. These animal spirits include confidence, fairness, corruption, money illusion, and story telling.
...more
Mark
Aug 31, 2011 Mark rated it really liked it  ·  review of another edition

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
Stephen
Jul 28, 2016 Stephen rated it really liked it  ·  review of another edition
How do we explain the recent financial crash? There are many explanations that dwell upon the technical aspects of the crash, there are explanations that attribute blame to narrow classes of people, and there are explanations that attribute the cause to institutional failure. There is a grain of truth in all of these, but each explanation is lacking somewhat in that they fail to convey a human dimension. This book acts as a corrective to that gap in our knowledge.

According to the authors, market
...more
Samiur
Mar 30, 2014 Samiur rated it it was amazing  ·  review of another edition
I read this back in 2010, and recently read an article by Shiller on Japan, Abenomics, and how Shinzō Abe has done an excellent job in writing Japan's narrative since the lost decade by boosting morale and confidence among the Japanese geared towards improved productivity and economic growth. Shiller's emphasis on the importance of storytelling as part of political leadership reminded me of when I had read Animal Spirits 4 years ago -- Net-net, I could relate to Animal Spirits as it was more "pe ...more
Dan
Jul 12, 2009 Dan rated it liked it
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
John
In The General Theory, John Maynard Keynes wrote that the switches between optimism and pessimism which drive rises/falls in investment spending which, in turn, cause rises/falls in output, were driven by '"animal spirits". This was always one of the weaker points of Keynes' analysis, essentially a big shrug of the shoulders, removing any notion of economic actors rational responses to changing circumstances. This book is simply a longer restatement of that argument. People are crazy, so the aut ...more
Diego
Dec 25, 2014 Diego rated it it was amazing  ·  review of another edition
Akerlof y Shiller traen de vuelta el viejo termino keynesiano de "los espíritus animales" las fuerzas psicológicas que mueven a los individuos a tomar decisiones en el mercado.

Keynes y sus contemporáneos comprendían que fenómenos como la ilusión del dinero, la confianza o la falta de esta y otros tantos sesgos y atajos informativos nos hacen proclives a auto engañarnos o a juzgar de forma errónea los riesgos que implican algunas decisiones.

Akerlof y Shiller parten en gran medida de los avances
...more
Anthony
May 14, 2015 Anthony rated it liked it  ·  review of another edition
Shelves: economics
The book starts with promise, recounting the Keynesian idea of irrational exuberance, and animal spirits, yet ultimately presents a seemingly jumbled view of how the animal spirits manifest themselves in an account of human nature. Shiller and Akerlof start strong in talking about confidence, yet the following 'animal spirits' seem to be bit-part examples of irrational decision motivators that lead nowhere. They seem to be hinting at a full systems critique (fairness, why we still believe storie ...more
Denisa
Jan 01, 2011 Denisa rated it really liked it  ·  review of another edition
Going back to an econ book I read as a grad student was surprisingly challenging and boring as well. The book makes a brave effort to explain through behavioral economics the reasons people and markets act the way they do by bringing in concept of animal spirits. While I agree with the authors' approach and explanations, I often found myself wanting more "meat", more information about the case studies that they very briefly outline. The case studies were painted in very broad strokes and perhaps ...more
Pang
Jun 04, 2009 Pang rated it liked it  ·  review of another edition
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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George A. Akerlof is a Professor of Economics at the University of California, Berkeley, and 2001 Nobel Laureate in Economics.
More about George A. Akerlof...

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“We have shown that a great deal of what makes people happy is living up to what they think they should be doing.” 3 likes
“The thought experiment of Adam Smith correctly takes into account the fact that people rationally pursue their economic interests. Of course they do. But this thought experiment fails to take into account the extent to which people are also guided by noneconomic motivations. And it fails to take into account the extent to which they are irrational or misguided. It ignores the animal spirits.” 1 likes
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