Book Review: George A. Akerlof and Robert J. Shiller, ‘The animal spirits’ (from the French version, Les esprits animaux: comment les forces psychologiques mènent la finance et l’économie)

Abstract

This book written by Robert Shiller and George Akerlof deals with our misunderstanding of the last crisis inherited from the collapse of the subprime market. Despite some precursor signs, nobody expected it. According to the authors, the last crisis (and the resulting recession) appeared unexpected because we always neglect the importance of animal spirit and more generally the place of human being in the economic theories.Akerlof and Shiller aim at restoring 'from the intellectual history bin' (p. 6) the (old) Keynesian concept of animal spirit in order to improve our understanding of the last global crisis. Of course, the book, as many others, deals with the current recession, however it can be distinguished from other works because it offers a normative perspective about the way of developing economic theories.Beyond the scope of the book, Akerlof and Shiller claim for a theoretical revolution in economic theory. As Keynes reminded us in 1936, academics and policymakers should restore the place of individual psychology (even if it looks irrational) if we want to understand how economic phenomena works and then improve our ability to forecast the potential emergence of a crisis. In this perspective, Akerlof and Shiller use the contributions developed in cognitive psychology and behavioural economics.As they suggested in the title of their book, the authors emphasize the key concept of 'animal spirit'. By animal spirit one should understand 'the state of mind which is underlied by any intellectual and emotional

Confidence and Monetary Policy Transmission

“…The idea that animal spirits are essential for economic fluctuations increasingly gained attention in recent years, following Animal Spirits: How Human Psychology Drives the Economy and Why it Matters for Global Capitalism from the two Nobel price winners Akerlof and Shiller (2009, see also Barbaroux 2012). There is also a long tradition on the importance of confidence in finance for the business cycle.…”