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Animal Spirits

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Animal Spirits

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

Princeton UP,

15 min read
10 take-aways
Audio & text

What's inside?

A provocative psychology-based proposal to rethink the fundamental principles of economics.

Editorial Rating



  • Comprehensive
  • Analytical
  • Engaging


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’s 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.


Emotional Economics

Economic performance is largely mental, though not necessarily rational. Emotions have a strong presence in economic decision making. Past economists, back to Adam Smith, have almost ignored the role of the irrational in economic decisions. Instead they explained economic events as the result of people pursuing their rational self-interest. That explanation fails to account for massive economic dislocations. It says widespread unemployment should not exist because workers rationally pursuing self-interest would accept lower wages consistent with the value of production. Wages and prices would adjust, the market would stabilize and unemployment would vanish. However, that isn’t what happens.

John Maynard Keynes said a rational calculation could not account for such economic decisions as opening a mine or building a factory or constructing an office building. The data about the long-term return on such investments is insufficient to support a truly rational calculation. Keynes wrote that such decisions “can only be taken as a result of animal spirits.”

Animal Spirits: Confidence and Fairness

The word “confidence” turns up often in business...

About the Authors

George A. Akerlof, winner of the 2001 Nobel Prize in economics, is a professor at the University of California Berkeley. Robert J. Shiller, best-selling author of Irrational Exuberance and The Subprime Solution, teaches economics at Yale University.

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