The Real World

June 2009
  The Psychologist, 22 (6), 469.

Although it did not received extensive coverage in the UK, earlier this year a new book by George Akerlof and his colleague Robert Shiller, Animal Spirits, found its way onto the New York Times top-200 book list. The title is a reference to an observation by Keynes that the behaviour which led America into, and out of, the Great Depression was the product of social factors (attitudes, beliefs and norms) rather than ‘raw’ economics. Picking up on this point, the subtitle of Akerlof and Shiller’s book is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism".

Had it been penned by social psychologists, this subtitle might have been seen as provocative hyperbole. What is significant, though, is that Akerlof is not a psychologist, but a Nobel Prize-winning economist, famed for his work on the capacity for differences in the information available to buyers and sellers to interfere with efficient trading (the so-called ‘lemons’ problem).

In Animal Spirits, Akerlof and Shiller expand upon Keynes’s original insight and clarify its relevance for the world today. In particular, they focus on the importance of five key psychological elements for a range of range of contemporary economic concerns — from cycles in the real estate market and global recession, to job insecurity and poverty.

What is interesting too, is that these five elements are not narrowly abstracted from one particular branch of psychology. Instead, the authors draw broadly and boldly upon a full range of previous research and theory. Thus at the more cognitive end of their analysis they discuss the way in which wage negotiations and expectations are driven by the nominal value of money rather than its true purchasing power (the so-called ‘money illusion’). At the more discursive end, they focus on the importance of stories as a key driver of large-scale economic processes. It is impossible to explain the more dramatic movements of markets, the authors contend, without reference to the socially shared narratives that people draw upon to make sense of the economic world around them.

Akerlof and Shiller’s book is a fascinating and compelling read. It offers an accessible treatment of a range of economic issues that are the topic of everyday news stories, but which (strangely) always seem to be just beyond the bounds of one’s comprehension. For psychologists, though, it reminds us that the authority of our work does not derive from its scientific isolationism but from its capacity to be woven into larger tapestries. These tapestries know little of the petty prejudices that contaminate the review process, of the fetishisation of psychological method, or of the impeccable trivia that consume so many journal pages. They also remind us that, unless we overcome these impediments ourselves, it will be left for scientists in other disciplines to show us the importance and power of our own.