---- George Akerlof, Robert Shiller
I have
procrastinated on writing a review on this book, mainly because I hardly
enjoyed reading it for any of its content to have lasting memory in my brain,
and I didn’t have an easy time trying to recollect what I thought to be the
gist of the book.Well, I guess had
it not been on our reading list I would probably have passed it. Nonetheless,
having decided to take reading list seriously, and not wanting to stumble on
the first book I picked, it is necessary that the following paragraphs are
given attention.
Akerlof is a
respected economist who has won Nobel Prize for uncovering the theory of
asymmetric information as another market failure, famously known as the “lemon
problem”. That makes up for his relative lack of talent in presenting economic
insights in an interesting way.
Akerlof and
Shiller discuss the themes of corruption, stories, and feeling of fairness,
exuberance of confidence and the lack of it, as forces shaping economic
decisions or the absence of it. They highlight the importance of emotions and
traits essentially tied to human sentiments, as opposed to the conventional
wisdom of perfect rationality, in causing economic phenomenon we struggle to
explain.
With the backing of
experiments and historical data, Akerlof and Shiller are able to explain how
our delusional beliefs, vulnerability to stories and the concerns over fairness
tend to override economic consequences more than we have given credit for. Markets
where such random fluctuations are rampant are obviously infested with “animal
spirits”, and they include the stock market (confidence), property market
(stories) and financial products (corruption).
Just to be more
specific, human beings are forgetful. Contrary to “learning from mistakes”, we
are blissfully oblivious of the past, and thus swing to stories and
word-of-mouth information. Our delusions
On top of
introducing unconventional ideas, the book sheds some light on economic forces
that we are already familiar with and have probably taken granted for. For
example, the authors explain the reasons why central banks have overwhelming
power in the control of money supply. It has never puzzled me that just by
withdrawing from and supplying the market with limited amount of money, the
central banks are able to influence interest rate. The truth behind this
magical trick should be the reward for a curious mind, and therefore, I should
not spoil the fun of it.
When exploring
the moral ground of current financial products, the authors invoke some
reflections of the demerits of capitalism and call for greater regulations in
such vulnerable markets. That people,
inherently governed by our “animal spirits”, would be tempted to devise ways to
sell snake oil to the unsuspecting when given a chance in laissez faire.
Human beings are
forgetful. They forgot how the previous depression started, and end up in
another depression just like the previous one. Yet stories live to tell the
tales of the past, to such an extent that even in modern time descendants are still psychologically framed in the context
of past sufferings of unfair treatment, upon which their world view and self-identity
are built. This explains why there has been stubborn poverty within certain minority
group in a society.
Akerlof and
Shiller hope that as soon as we start treating those turbulent floods of
emotions as part of economic reasoning, we would repeat less of past tragedies,
and government would be encouraged to harness that animal spirits and channel
them into constructive forces in building a more robust economy.
