'Narrative Economics'

Robert Shiller, Princeton University Press, 400 pages, $27.95. Everyone knows, or thinks they know, the story of the Wall Street shoeshine boy. In 1929, Joseph Kennedy, patriarch of the Boston-Irish political clan, had an epiphany: When the boy who shined his shoes offered him stock tips, he realized the stock market was about to implode. Kennedy promptly sold all his shares, and when the market crashed that October, he made a killing. In his new book, "Narrative Economics," Nobel laureate Robert Shiller offers this tale as an example of a contagious narrative that becomes part of folk wisdom. Shiller searched archives of newspapers from the period, and could find no record of it. But he did find a similar kind of story in the Minneapolis Morning Tribune from 1915. The stock market, it said, could not yet have peaked because "we do not hear of the chamber maids and bootblacks who have cleaned up fortunes by lucky plays." Whatever their provenance, Shiller said, it matters which kinds of narratives are contagious and why. Stories sway decisions to hire or fire, to buy or sell. These individual choices, writ large, move markets and drive the business cycle. Such narratives have common features. They tend to be oversimplified models of reality and thus catchy. Their success may owe to a "super-spreader," perhaps a celebrity, capable of infecting many people. And they are often part of a narrative cluster, which adds weight to their plausibility. And stories need not lead to bust cycles. The stock market boom of the 1990s was powered by an array of stories of the triumph of capitalism.