Narratives and animal spirits drive economic decisions.
Keynes coined the term in 1936 for the spontaneous urge to action rather than inaction. Akerlof and Shiller revived it in 2009 to explain what standard models missed about the financial crisis.
In practice
- A property market rises because everyone expects it to rise, and the expectation is the whole of the mechanism until it reverses.
- A company's share price moves on a narrative about its founder that no line of the accounts supports.