Random Events, Birthdays, and Anniversaries: How Does a Narrative Become an Economic Narrative?
Generally speaking, most people harbor vague fears and concerns stimulated by narratives, but these fears have little or no effect on their actions. The narratives become economic narratives when they involve stories in which others take action and describe the actions they take, such as investing in and getting rich in certain financial markets. Economic narratives thus tend to involve scripts, sequences of actions that one might take for no better reason than hearing narratives of other people doing these things.
Trying to understand major economic events by looking only at data on changes in economic aggregates, such as gross domestic product, wage rates, interest rates, and tax rates, runs the risk of missing the underlying motivations for change. Doing so is like trying to understand a religious awakening by looking at the cost of printing religious tracts. But it is easy to see why economists often fall into this trap: abundant data exist for GDP, wage rates, interest rates, and tax rates, but data on narratives are spotty at best. Economists may be falling into what historian Jerry Z. Muller calls the “tyranny of metrics.” Muller is not opposed to providing quantitative indexes of important economic phenomena, but he does note that most people overreact to such indexes and fail to see that they are overestimating the importance of arbitrary quantifications that are really of limited value.5
The people who make economic decisions against a background of narratives do not usually explain their decisions. If asked to explain, they might be at a loss for words or try to talk like economists. How, for example, can someone explain the ultimate reasons why he or she hesitated to spend during a recession? Hesitation is not taking action, and might be caused just by absence of any identifiable thought to take action, amidst a large number of other thoughts.
Contagious stories are largely creative and innovative, not simply a logical reaction to economic events. For example, major stock market corrections take place over many days, during which the public has plenty of time to read the sometimes creative and sensationalistic writing of the various news media, whose job is to attract attention. Over that time period, stock market participants take part in countless conversations that reinterpret the news in efforts not only to inform but also to amuse.
The process is in many ways a random event, like the mutation in a microbe such as a bacterium or virus. A celebrity, for example, may offhandedly voice a colorful phrase. That is what happened on October 15, 1929, two weeks before the 1929 crash, when the famous Professor Irving Fisher of Yale, in a speech before the Purchasing Agents Association of New York, said that the US stock market had reached a “permanently high plateau.” The newspapers picked up that new, colorful phrase over the next couple of days.6 That spectacularly ill-timed and ironic phrase became an epidemic, probably affecting the duration of the market debacle, and it is still widely remembered today. In fact, those three words are more famous today than the title of any of the books that Fisher spent years writing. They are in the same league with other colorful phrases such as irrational exuberance and Laffer curve. These words and their effects came from outside the economy, and they are therefore exogenous.
Also, anniversaries of past events can resurrect economic narratives. Even though a narrative of years past—such as the 1987 stock market crash—has lost its contagion, it may still exist in the dim recesses of memory, for older people at least. But it has the potential to become contagious again, if it is tweaked (and probably renamed) and reattached to a human-interest story. For example, the news media tend to remind the public about the 1987 crash on major anniversaries, and they will predictably continue to do so until there is a bigger one-day crash. At that point, 1987 will no longer be the record-holder, at which time it won’t be of any interest at all.
By 2013, the Bitcoin narrative was beginning to fade. It was an old story, and the price of a Bitcoin dropped from over US $1000 at its 2013 peak to just over $200. But a proliferation of new inventions—or mutations—kept the idea alive. Notable among these inventions was the initial coin offering (ICO), which allowed new cryptocurrencies to be developed with distinctively different stories. These currencies were backed, in effect, as shares of corporations. The ICO brought a flood of new narratives, each tied to a particular coin identified with some line of business. It brought back into public esteem the old sport of picking stocks, which had become somewhat tarnished as a fool’s errand. There was something new to talk about. In 2017 alone, there were over nine hundred initial coin offerings for crowdfunded business startups that wanted to raise money for some new venture. Almost half of them failed within a year, but new ICOs kept coming.7
Of course, economists are aware of the narratives associated with events, but mostly they work on the assumption that the narratives are nothing more than a bit of silliness that follows the discovery of changing real news about deep economic forces. The presumption is often that these deep economic forces are caused exclusively by scientific advances in production, discovery or unexpected exhaustion of natural resources, demographic changes, or economic research that provides new information on how government policymakers can adopt better rules of action. But this mode of thinking misses what may be the essential elements that cause change in the economy. As we saw in part I, the economic narratives surrounding these events work in predictable ways: they are contagious, they suggest scripts for people to follow, they repeat their messages, and they thrive on human interest. In doing so, they affect society and the course of economic activity in highly consequential ways.
Controlled Experiments from Outside Economics Show Direction of Causality
While we may sometimes be able to infer direction of causality by studying economic history, we need also to recognize that controlled experiments outside of economics have shown narratives’ effects on human behavior.
In the field of marketing, Jennifer Edson Escalas notes, self-referencing occurs when the viewer of an advertisement relates a product to his or her personal experiences. But not all self-referencing is equally effective in changing buyer behavior. Using controlled experiments, Escalas has compared analytical self-referencing (an explanation of why you need the product) to narrative self-referencing and narrative transportation (which presents a story that causes an individual to imagine himself or herself to be another person, using the word I rather than you). Escalas found that the narrative transportation is more effective, especially when the analytical case for the product is weak.8
In journalism, Marcel Machill and his coauthors, noting evidence that viewers of television news retain little of the news they hear, presented an actual TV news report on the dangers of air pollution to a control group. They also presented a variation of the report to the experimental group in the form of a story with a protagonist, a baker with health problems caused by air pollution, in an unfair struggle against antagonists who benefited from the polluting activities. The experimental presentation of the news was retained better.9
In education, Scott W. McQuiggan and his coauthors have found motivational benefits of narrative-centered learning. Each eighth-grade student in the experimental group played a virtual-reality computer game in the role of a young Alyx, whose father, in the fictitious story, is the head of a team of research scientists on Crystal Island. A mysterious grave disease has afflicted some of the scientists, including Alyx’s father. Alyx is determined to find out why. Playing involves interacting in dialogues with other simulated people. In the process, the student learns about microbiology, about bacteria, viruses, fungi, and parasites. The study documents an advantage in learning relative to the control group with regard to “self-efficacy, presence, interest, and perception of control.”10
In health interventions, Michael D. Slater and his coauthors studied how to persuade people to eat more fruits and vegetables. They concluded from experiments that didactic presentations of evidence on nutrition were not effective. Audience response was stronger to
narrative messages when the audience identified with persons portrayed in the message. In health interventions, these results underscore the need for carefully pretesting the story and choosing the right persons to convey the message.11
In philanthropy, Keith Weber and his coauthors (2006) asked subjects to read a message involving organ donation before asking them to sign an organ donor card. The content of the message (narrative versus statistics) was manipulated. Results indicated that narrative messages were more effective than statistical messages.
In law, Brad E. Bell and Elizabeth F. Loftus (1985) conducted a controlled experiment in which subjects took on the role of jury members. The goal was to determine the jury members’ response to vivid prosecutions and nonvivid prosecutions. For example, the vivid prosecution included the irrelevant line that the accused, at the time of the crime, accidentally “knocked over a bowl of guacamole dip onto the white shag carpet.” That irrelevant but vivid mental image helped obtain a conviction from the experimental jury.
In sum: economics can learn from other social sciences, including psychology (especially social psychology), sociology, anthropology (especially cultural or historical anthropology), and history (especially cultural and intellectual history or histoire des mentalités). Because controlled experiments about whole economies are not readily available to economists, it is all the more important that we specify and understand the building blocks of economic narratives. Stories are one key building block.
The Importance of Stories in Driving Human Activity
Emotion matters in the structure of narratives, economic and otherwise, and it reveals itself in stories. The historical novel and historical movie stand outside of mainstream history, but they excel in helping us understand feelings in history and appreciate some of the narratives that drive history. The historical novelist or filmmaker, who constructs dialogue based on imagination and the intuition that research has afforded, looks more like an inventor than a scholar.
In his 2013 presidential address before the American Historical Association, historian William Cronon compared scholarly research in history with the historical novel:
Historians choose not to represent aspects of the past about which our documents are silent, but some of these—stream-of-consciousness and informal conversation most obviously—are so fundamental to so much of life that it is a little hard to say which depiction of the past is more distorting: a history that says nothing about them, or a fiction that in the absence of authoritative evidence tries to represent them as responsibly as possible.12
There is thus a basic question about the primary metaphor that we use to understand an economic crisis. Dominating the discussion in popular media is the “economy-as-sick-or-healthy-person” metaphor. The economy is described as healthy at some times, as sick at others, as if it needs a doctor who will administer the right kind of medicine (fiscal or monetary policy). In keeping with the sickness/health metaphor, the popular media often report on a thermometer called “confidence,” measured by confidence indexes or the stock market.
The significance of human-interest stories brings to mind the work of psychologist Robert Sternberg. In his book Love Is a Story (1998), he describes healthy, loving relationships between two individuals as made possible by a narrative of their relationship. As in loving relationships, the progress of an economy is not one-dimensional. Rather, the story of the economy has dimensions beyond the public’s perception of its health. The story has moral dimensions as well, involving attitudes of loyalty versus opportunism, of trust versus distrust, of cutting to the head of the line versus waiting politely. In addition, the story has dimensions of affect, of security versus insecurity, of inner direction versus public direction. The array of stories circulating at any point of time conveys all of these dimensions.
Flashbulb Memory
In addition to having a story-like structure, our memories tend to focus on a few salient, random images. Certain poignant narratives produce such strong emotional reactions that people remember them years later. The narrative may have been transmitted to them only briefly and succinctly, among many other communications that are quickly forgotten. Why can such brief exposures to a narrative cause changes in economic behavior long afterward?
When asked to describe their confidence or current motivations, people can sometimes remember and talk about a sudden change in their mental stance, suggesting a discrete and identifiable causal stimulus. In the extreme form, the establishment of a long-term memory may be so sudden as to be considered a flashbulb memory.13 The experience of a flashbulb memory is similar to the effect of an underexposed movie, filmed in darkness, illuminated for only an instant when a camera flashbulb went off. That flashbulb image may tell quite a story, suggesting an event with a reason, with surroundings and ambience. With many of our memories, we remember points in time, and we have some idea of context, but we cannot move away from the focused, flashbulb memory.
Psychologists have studied how the brain chooses which memories to give flashbulb status, analogous to choosing which photos to put in a family album. It turns out that flashbulb memories are connected not only to the emotions attached to the remembered event but also to social psychological factors. Memories that involve a shared identity with others, or that are rehearsed with others, are more likely to achieve flashbulb status.14 Thus flashbulb memories are selected in a way that gives them a better chance to be involved in the formation of contagious narratives.
For example, the narrative describing the first shots of the US Civil War near Fort Sumter in 1861 was vividly remembered decades later. Thirty-five years after the event, a former US first sergeant described in great detail just what he was doing when, for the first time in his life, he was told he must lead his men on a mission that might get them killed:
I was on duty as first sergeant of a company of 100 recruits, well instructed as infantry, on Governor’s Island in the New York harbor. We had just about got through with our holiday celebrations, which in antebellum days, were made to last about ten days in the army: and hearty celebrations they used to be. On Saturday, the 5th of January, I was engaged in having the quarters cleaned for the orthodox Sunday-morning inspection, and contemplated having a quiet day, and winding it up with a little more holiday celebration in the evening, when I was summoned to the adjutant’s office, where the sergeant-major told me to have my company paraded at 2 p.m. in marching order, for inspection. No use asking questions.15
The Japanese attack on the US base in Pearl Harbor in December 1941, which marked the beginning of US involvement in World War II, is similarly described by powerful narratives that explain the commitment to fight the war. Forty years later, people still remembered when they first heard the Pearl Harbor news:
UniHi classmate John Holmes still remembers precisely where he was and what he was doing:
“In those days they sold newspapers on street corners. I was a paperboy selling the Examiner at the corner of Pico and Prosser. I sold the paper that reported Pearl Harbor had been bombed.
“But I didn’t realize what it meant, that it would change my life. I was too immature.”
Joe Arnold was working, too, at a gas station at Glendon and Londbrook in Westwood. “It had a big tower. It was foggy that day, and I climbed up to the top of that tower to see if I could see anything. I don’t know what I expected to see.…”
Barbara Ryan Dunham’s memory is typical of that of many Americans.
“We were at the breakfast table,” she said. “We had come home from church, and we had the radio on.… Nobody could believe it at first.”16
Flashbulb memory is one aspect of the human tendency to become motivated by seemingly random details of stories, even brief stories that are little more than anecdotes. In the above examples, the stories involved what happened just before or just after the shocking news, in the form of a sequence of mostly meaningless events. In comparison, if we were to ask people to recount such trivial details about another random day
decades ago, they would have no memory at all, precisely because the day was not connected with a famous or infamous event.
A famous flashbulb memory event in recent US history is the September 11, 2001, terrorist attack that resulted in the destruction of the World Trade Center in New York City and severe damage to the Pentagon in Washington, DC. Many people in the United States today can remember a story about what they were doing when they heard about the attack. The vividness of these memories is testimony to the attack’s causal impact on their economic actions.
At that time, according to the National Bureau of Economic Research (NBER), the US economy had been in a recession since March 2001, following the 2000 peak in the world’s stock markets and the subsequent financial crisis and major decline. Right after the September 11, 2001, attacks, in which terrorists crashed commandeered airplanes into symbolically important national targets, there were widespread fears that the recession in the US economy would be prolonged because people would choose to stay at home owing to their fear of another such attack.17 Coming a year after the popping of the 2000 stock market bubble, amidst numerous signs of recession, the terrorist attacks were the “perfect storm” for the “economy to hit the wall.”18
But the attacks appear to have had just the opposite effect. In November 2001, the recession ended and the US economy almost immediately recovered, making that recession one of the shortest in US history. How might we explain the nation’s quick recovery? After the attacks, a narrative took hold that involved a plea from national leaders asking the nation’s people to do symbolic things to uphold national confidence. Two weeks after the attack, US president George W. Bush gave a talk to airline workers and to the nation as a whole:
Narrative Economics Page 10