December 13, 2019 / Esther Choy

Narrative economics

The field of economics is highly quantitative. Storytelling, on the other hand, is creative and literary. One would think these disciplines have nothing in common. This had been true until Nobel-Prize-winning economist Robert J. Shiller released his new book Narrative Economics. In it, Shiller argues that economic narratives—contagious stories that can alter people’s economic planning— are so influential they are worthy of serious academic study.

Whether you are into economics or not, Shiller’s thesis has serious implications for every business leader.

Like it or not, narratives are powerful.

One of the first things Shiller sets straight is that the question isn’t whether narratives should, rationally, affect the stock market, but whether or not they actually do.

Leaders may question whether or not stories should be persuasive. Shouldn’t we just stick to the facts? Shouldn’t we trust that our brilliant audience will “get it”?

Like Shiller, we can conclude that the question isn’t what our audience should do, but what they actually do. And we know that what people do is remember stories. Information is up to twenty times more memorable if it is presented as a story.

Data misses a lot.

Shiller argues that data alone is insufficient for interpreting economic shifts. “Trying to understand major economic events by looking only at data,” says Shiller, “… runs the risk of missing the underlying motivations for change.”

After World War I, the economist John Maynard Keynes considered how Germans would interpret the Treaty of Versailles. He was concerned about the literal price the winning nations were forcing Germany to pay, and he was also concerned about how they would “likely interpret the story of the Versailles treaty given their economic conditions.” He warned that Germany’s reaction could lead to worse horrors than before. In Shiller’s view, Keynes was trying to understand the narratives people would construct and then make predictions based on this.

A common belief amongst researchers and those who rely on data is: if you can’t measure it, then “it” doesn’t exist.

As this example illustrates, though Keynes didn’t or couldn’t measure the resentment, indignation, and economic hardship that post-World War I Germany experienced, it doesn’t mean that these factors didn’t exist or weren’t important.

Contagious narratives share common elements.

Shiller is interested not just in any economic narrative, but in contagious economic narratives. Effective leaders should also focus on the narratives that go viral within our organization or industry, or among our customers. As an example of a contagious narrative, consider Bitcoin (as Shiller does). This cryptocurrency is only valuable if people value it. If no one wants to use it, its value plummets, so it has to have a narrative that makes people want to use it. In this case, it is a powerful narrative because it:

  • Exemplifies a value system. Because Bitcoin functions outside of government control, fans see it as capturing positive anarchist values. It points toward a world that could exist without government.
  • Has an intriguing founder. Mystery surrounds Bitcoin’s founder, Satoshi Nakamoto. In fact, says Shiller, he “has never been seen by anyone who will testify to having seen him.”
  • Gives people a sense of mastering technology. Bitcoin users may feel that by being on the cutting edge, they are going to be among the winners in this merger of finance and tech.
  • Makes them global citizens. Because Bitcoin is not associated with any particular country, it gives people an opportunity to transcend nationalism and become global citizens.

Of course, it’s one thing to dissect a popular narrative after it has gone viral. But how does one craft ideas with the hope of making them go viral? Four considerations Shiller gives:

  • Package ideas narratives. “People often fail to notice ideas,” Shiller writes, “if those ideas are not part of a script or are not packaged well enough.”

Give people a story they can re-tell. “People like to hear stories that they can retell to others who will like the same story,” notes Shiller. However, these are not the most trustworthy stories. A study in Science found that “false stories had six times the retweeting rate on Twitter as true stories,” says Shiller. (And that fact has been verified—feel free to pass it along!) Ethical storytellers must tell contagious true stories!

  • Include a visual image. This doesn’t require a sketchpad. Just to tell a story with vivid images. Shiller notes how the Laffer curve became a powerful idea partly because its narrative included a tidbit about the curve first being drawn on a napkin at a fancy restaurant. People could picture that happening, and the ideas “stuck” more easily.
  • Value what your audience values. Though Shiller doesn’t explicitly say this, his points about Bitcoin carry a message for all business storytellers. Things have value because other people assign value to them. That means that as a leader, the value you assign to stories or ideas is not enough. Don’t fall into thinking, “that’ll never catch on.” Assess the narratives honestly and see whether others are taking them seriously.

Narratives shape the world in ways that academic fields and industries are just beginning to catch up with. As leaders, it is high time to proactively assert our stories and give them every chance of going viral. This is, after all, the essence of leadership storytelling: the intentional assertion of a point of view through a story.How and when should you proactively tell such stories?

Read my article “Leaders Need To Embrace Key Storytelling Moments” to find out.

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If you want to craft a contagious business narrative, schedule a complimentary working session with us to craft the right story. For more examples of the right stories to tell at the right time, sign up for our monthly guide. My book, Let the Story Do the Work (published by HarperCollins Leadership), is now available and serves as your business storytelling toolkit.

Esther Choy

Esther Choy founded Leadership Story Lab in 2010 to help others leverage the art of storytelling to create extraordinary opportunities.
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"This is an amazing and insightful post! I hadn’t thought of that so you broadened my perspective. I always appreciate your insight!" - Dan B.

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