Saturday, May 9, 2009

John M. Mason reviews "Animal Spirits" by Akerlof and Shiller

The book Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, by George A. Akerlof and Robert J. Shiller, is getting a lot of attention. One of the reasons for this attention is that the book is co-authored by Bob Shiller, an economist whose name seems to be appearing everywhere these days from television talk shows to the op-ed pages of the Wall Street Journal. George Akerlof is not so well known outside of the economics profession, but he did win a Nobel Prize in economics so he is not a person to be taken lightly.

A second reason for the attention is that a great search is going on to discover reasons for the current economic and financial collapse. This book provides a coherent rationale for the collapse, although I disagree with it.

The Akerlof/Shiller hypothesis is “that much of economic activity is governed by animal spirits.” People’s “animal spirits” are defined as the “noneconomic motives” they use when making decisions.[Story continued here]

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