As we’ve seen, cryptocurrencies are backed by a constellation of related narratives, with a few main stars and thousands or millions of smaller stars. As of 2018, nearly two thousand cryptocurrencies competed with the original Bitcoin. Each of these cryptocurrencies is a story of entrepreneurship, of eager developers with an idea. But the largest constellation of cryptocurrency stories focuses on Bitcoin-related stories. In one narrative, the popular singer Lily Allen turned down an offer in 2009 to do one performance and be paid in Bitcoin. This narrative has a memorable punch line: Allen is kicking herself in regret today, for if she’d accepted the offer and held on to her Bitcoin, she would have been a billionaire by 2017.4 Stories like this one help sustain the growth of the Bitcoin narrative and Bitcoin prices by invoking people’s feelings of regret for not discovering the investment themselves. Like so many other narratives, this story focuses on a celebrity who starts a narrative or keeps it going.
It is difficult to define the exact parameters of narrative constellations. Often we can find only superficial examples of some of their stories. Most narratives are never written down and are lost forever. Moreover, the narratives sit in the background and are rarely expressed when decisions are made. For example, if you are discussing with your spouse whether to buy a new car this year or wait until times look more secure, you may be unlikely to tell to your spouse one of the stories that makes you feel secure or insecure. Thus it becomes difficult to establish a connection between the narratives and the action. The final link between a verbal narrative and economic action may ultimately be nonverbal.
Proposition 4: The Economic Impact of Narratives May Change Through Time
An economic narrative’s impact on behavior depends on details of the narrative’s current mutation and other related narratives. When we rely on digitized data on words or phrases that are flags for narratives, we must resist the temptation to assume that all the narratives with these flags have the same meaning through time. We have to read the narratives in terms of their implication for action, in the context in which they were spoken, at least. In the future, some information-processing innovation might make this undertaking less dependent on human judgment.
Let’s look again at the October 19, 1987, stock market crash, the biggest one-day crash in percentage terms in history. The topic still comes up regularly, often on major anniversaries of that event. We might believe that memories of that crash make stock markets vulnerable to another crash, because fear of a crash may cause people to react to the apparent beginnings of a drop in stock prices. But the narrative of the 1987 crash need not have any such effect if people do not think current circumstances are similar. In 1987, there was much discussion of a new computerized trading program called portfolio insurance. Along with other factors, narratives about portfolio insurance led to a predisposition to consider selling that was peculiar to that time.5
Other disturbing stock market events were surrounded by narratives that had nothing to do with portfolio insurance. After Austria-Hungary declared war on Serbia on July 28, 1914, touching off World War I, stock prices began to fall precipitously. Reacting to the panic, the New York Stock Exchange and all the major European stock exchanges closed their doors. Even though the United States was not involved in the war, the New York Stock Exchange did not reopen until December 12. In his 2014 book about this closing, When Washington Shut Down Wall Street, William Silber details a number of stories and rumors that contributed to the market’s severe reaction. Notably, panicky European investors scrambled to get their investments out of the United States while they could. During this “European gold rush,” massive amounts of gold were shipped from the United States to Europe despite increasing danger to transatlantic shipping. There was much talk about the Panic of 1907 as proof that US markets were unstable, along with fears that another panic might occur. In addition, there was a baseless rumor that the assassination of Archduke Franz Ferdinand, which triggered World War I, was part of a conspiracy involving the Russians, who were hoarding gold in preparation for a great war.
In contrast, the beginning of World War II in 1939 did not close the US stock market. After the United Kingdom declared war on Germany on September 3, 1939, marking the beginning of World War II, the Standard & Poor’s Composite Index gained 9.6% in one trading day. Newspapers expressed general surprise at such a positive market reaction and were mostly at a loss to explain why the market did not repeat its 1914 experience. Apparently the very different response had something to do with a narrative that World War I had, ultimately, proven very profitable for some investors who’d held on to their stock market investments and profited from selling armaments or supplies to Europe.6 The human stories of World War I and World War II might be very similar, but there was a huge difference in the narratives describing successful investors around the start of each war.
We must pay attention to the names that people attach to their narratives. Seemingly minor changes in the name of a narrative can matter a lot, especially if the new name attaches to a different constellation of narratives. In linguistics, synonyms never have exactly the same meaning. If pressed, people can state complex thoughts about the slightly different connotations of synonyms. In neurolinguistics, synonyms have different connections in the neural network. Some of those connections can matter a lot in terms of the economic ideas they support.
Proposition 5: Truth Is Not Enough to Stop False Narratives
Suddenly prominent economic narratives sometimes appear mysteriously and for no apparent reason. One such narrative occurred after the 2007–9 world financial crisis, when near-zero interest rates were interpreted as a harbinger of a “lost decade,” as they had been for Japan in the 1990s. The Japanese “lost decades” story is just one example, just one observation and hence of no statistical significance, but it was contagious enough around the world to rekindle Great Depression narratives, and it launched serious fears about “secular stagnation.”
Indeed, such narratives and fears can have serious effects on the economy and our lives. For example, according to political scientist Stephen Van Evera (1984), World War I started at least partly because a false narrative, which he calls “the Cult of the Offensive,” went viral. This narrative was a theory that the country that moves first to attack another country will generally have the advantage. The idea was supported by some historical narratives and illustrated by simplistic psychological, mathematical, and bandwagon arguments. Ultimately, Van Evera argues, this theory led to instability: everyone wanted to attack first. Germany thought it had a “window of opportunity” to successfully pursue a “preventive war” against Russia. But the narrative was wrong. It had economic consequences—a huge arms race—and resulted in a war that was disastrous for both the offense and the defense. Norman Angell called the narrative “The Great Illusion” in a 1911 book with that title. Angell’s ideas were convincing to many (and he later won the Nobel Peace Prize for his work), but they did not go viral fast enough to prevent the war. The illusion won out even after it had been decisively disproven, because the proof did not spread as fast as the illusion did.
By analogy, we see that economic activities are not always based on up-to-date information. Sometimes they are based on whatever narratives are going viral at a particular time. While general knowledge steadily advances in many respects, we do not necessarily see a steady progression in the knowledge that often importantly affects economic behavior. The narratives that surround and define Bitcoin provide an example. There are brilliant computer scientists who are fascinated by cryptocurrencies but who won’t say whether the captivating ideas that generate public excitement are ultimately right or wrong.
Fortunately, in matters of simple fact, unencumbered by any human interest or story quality, modern society stays generally on target, or at least willing to stand corrected if in error. For example, most people can name the various highways around their home correctly and will accept correction if an error is pointed out to them. They also routine
ly trust medical doctors to tell them the truth about things they know nothing about. Well, sort of, anyway. In a 2003 study, the World Health Organization concluded, “Poor adherence to treatment of chronic diseases is a worldwide problem of striking magnitude.”7 The WHO went on to report that only about 50% of patients in developed countries consistently follow doctor’s orders for chronic illnesses, and even fewer do so in emerging countries. Adherence is probably even worse when it comes to following advice from more controversial economic pundits or financial planners. But where does advice end and speculation begin? And how do we distinguish informed speculation from confabulation or fiction? The slope is slippery. Ultimately, a story’s contagion rate is unaffected by its underlying truth. A contagious story is one that quickly grabs the attention of and makes an impression on another person, whether that story is true or not.
A study by Soroush Vosoughi and his coauthors published in Science in 2018 used social media data to compare the contagion rates of true stories with the contagion rates of false stories.8 The researchers chose the stories from among those that had been vetted by six fact-checking websites: snopes. com, politifact. com, factcheck.org, truthorfiction. com, hoax-slayer. com, and urbanlegends.about. com. They found 95–98% agreement across these sites as to a story’s truth or falsity. They also looked at 126,000 rumors spread by three million people, and they found that false stories had six times the retweeting rate on Twitter as true stories. The researchers did not interpret that finding as specific to Twitter, and the result may be specific to the time of the study, a time when mistrust of conventional media sources was higher than usual. Rather, these authors interpreted their results as confirming that people are “more likely to share novel information.” In other words, contagion reflects the urge to titillate and surprise others. We can add another twist to that conclusion: a new story correcting a false story may not be as contagious as the false story, which means that the false narrative may have a major impact on economic activity long after it is corrected.
Proposition 6: Contagion of Economic Narratives Builds on Opportunities for Repetition
Contagion depends on the frequency of opportunities to slip a narrative into a conversation. It is usually impolite or rude to change the conversation subject, unless justified by some extraordinary circumstance. Novel ideas and concepts may increase opportunities for contagion. For example, the contagion rate of narratives about the stock market probably increased when, in the 1920s and 1930s, the public began paying attention to stock price indexes. The same thing happened with narrative epidemics about housing after the 1970s, when real estate agents and homebuyers began to recognize home price indexes. In both cases, news media writers, looking for new facts to justify writing an attention-grabbing story, found themselves revisiting these indexes frequently.
Consider another example, familiar to almost all of us: the song “Happy Birthday to You.” It is probably not an important economic narrative. Some might say it is not even a real narrative because the words of the song do not tell a story. But there is a story attached to the song in practically everyone’s consciousness. The story is a sequence of events, repeated with variations on birthdays. The story is this: Based on a long tradition that goes back generations, people have assembled to celebrate the birthday of a loved one. After someone announces that the ceremony is about to begin, a birthday cake is brought in with flaming little candles, one for each year of the person’s life (unless he or she is too old, in which case there will be commentary or jokes about the number of candles). The birthday person makes a wish and attempts to blow out all the candles with one breath in order to make the wish come true. Of course, almost no one believes that birthday wishes come true, but they repeat the ritual in deference to long tradition. Sometimes additional words are added to the song, such as “And many more to you,” which may make for an awkward moment because the syllables do not match the melody. The ceremony ends with applause.
“Happy Birthday to You” is a good example of a contagious narrative because it has spread around the world in many translations, and it may be the best-known song of all time. It is contagious in part because of the constant reappearance of birthdays, not because it is anybody’s favorite song. It is not particularly admired for its beauty or grace. It grew unplanned and uncontrolled. There is no history of a government edict requiring the song to be sung, or a marketing campaign promising lifelong popularity for those who sing it or have it sung to them. Digital counts show that the song grew in English like a disease epidemic in the 1920s and 1930s, faltered around World War II, when people had more important things on their minds, and then took off again.
Warner/Chappell Music had long claimed a 1935 copyright on the song, and it collected millions of dollars per year in royalties, but it lost the copyright in 2016 when it was shown that “Happy Birthday to You” had striking similarities to a published 1893 song, “Good Morning to All.”9 “Good Morning to All” was a virtual nonentity, even though it closely resembles “Happy Birthday to You,” with the exact same melody and very similar words:
Good morning to you
Good morning to you
Good morning dear children
Good morning to all.
The happy birthday version is so similar that it might easily have come into being by accident in some kindergarten classroom when a teacher somewhere, somehow wanted to mark the occasion of a child’s birthday. The mutation then went viral from that obscure beginning:
Happy birthday to you
Happy birthday to you
Happy birthday dear [name]
Happy birthday to you.
Let’s consider why the seemingly minor mutation has done so much better than the original. The slight change in the lyrics served to make “Happy Birthday to You” part of a new and growing ritual and a symbol of caring, the birthday party, whose popularity began to grow around the 1890s. This association with other infectious narratives enhanced the song’s contagion, and, because the ritual recurs from year to year, it reinforced memory and reduced the recovery rate that eventually extinguishes most epidemics. Also, the change in the words allows the singers to insert the birthday person’s name, thus personalizing the song and adding more human interest.
Also consider why the authors of “Good Morning to All” did not realize that they could become millionaires if they just changed the song into “Happy Birthday to You” and copyrighted it. At some level, it may seem that they should have realized that the ritual of birthday parties was likely to persist and gain in popularity. They should have known that a song that ties into the birthday ritual—a song that is very short, easy to memorize, and sung frequently—should be a winner. And they should have realized that they could copyright the song and extract millions from commercial outlets.
Easier said than done, as what is obvious now was not so obvious then. There are so many other possible permutations of the song. There are sixteen words in “Good Morning to You.” Suppose we decide to change half the words while keeping the total number constant. There are thus 16!/8! (= 518,918,400) ways to replace the words. Suppose there are one hundred words in the English language that are simple enough to replace eight of the sixteen words. That means there are 100^8 = ten quadrillion times 518,918,400 possible variants of the song. It would be impossible to think through all of these possibilities in advance and realize how to make a fortune by tweaking the song. So the invention of “Happy Birthday to You” out of “Good Morning to You” was likely just a random event, unlikely ever to happen. But it did happen. It was unappreciated at first, but then a new contagion quietly started without mentioning the author of the change, who is hopelessly forgotten. It led then to a vast constellation of narratives involving the song infused into movies, TV shows, and social media, among other formats.
Proposition 7: Narratives Thrive on Attachment: Human Interest, Identity, and Patriotism
Usually economic narratives rely on human-interest stories for t
heir contagion, because human beings are attracted to such stories. When an identified personality is associated with a narrative, a face we can picture in our minds, then our brains involve our models of people, voices, and faces with the story, lowering the likely rate of forgetting. But the human-interest stories themselves may not be enough to make a narrative contagious. A successful economic narrative is sometimes the invention of creative minds who sense what is contagious and what is not, and who put the elements together well enough to launch a contagious narrative. Those who aspire to create viral narratives must choose their celebrities carefully because the narratives work best when the intended audience personally recognizes and identifies with the celebrity.
For example, there is the George Washington and the cherry tree story, which has been popular for over two hundred years. It first appeared in print soon after Washington’s death in 1799, in a new edition of a best-selling book, The Life of George Washington with Curious Anecdotes, Equally Honourable to Himself and Exemplary to His Young Countrymen by Mason Locke Weems. Based on the book’s title, it is clear that Weems was interested in launching tellable narratives about Washington. Weems said he heard the cherry tree story from “an aged lady, who was a distant relative, and, when a girl spent much of her time in the family”:10
“When George,” said she, “was about six years old, he was made the wealthy master of a hatchet! of which, like most little boys, he was immoderately fond; and was constantly going about chopping every thing that came in his way. One day, in the garden, where he often amused himself hacking his mother’s pea-sticks, he unluckily tried the edge of his hatchet on the body of a beautiful young English cherry-tree, which he barked so terribly, that I don’t believe the tree ever got the better of it … “George,” said his father, “do you know who killed that beautiful little cherry tree yonder in the garden?” This was a tough question; and George staggered under it for a moment; but quickly recovered himself: and looking at his father, with the sweet face of youth brightened with the inexpressible charm of all-conquering truth, he bravely cried out, “I can’t tell a lie, Pa; you know I can’t tell a lie. I did cut it with my hatchet.”11
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