Author: George A. Akerlof and Robert J. Shiller
Synopsis by Sabiha Sharmin Eva
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‘Animal Spirits’ is a term invented by the famous British economist John Maynard Keynes. He described Animal Spirits as a human emotion that affects consumer confidence and how people come to financial decisions in times of economic uncertainty. Prominent economists George A. Akerlof and Robert J. Shiller re-introduced Animal Spirit in terms of the modern economy and described its importance with how it is necessary for the government to take things into their own hands and control this spirit.
The book comes in two parts. Part one is about the various ‘animal spirits’ that direct the ways in which we think about and act within the economy. In economics it is too often taken for granted that humans are ‘economically rational beings’ and they make logical decisions by nature. But Akerlof and Shiller wanted to take off that emerald glasses from everyone’s eyes and focus on the obvious - that people are not always rational and they constantly don’t consider the cost and benefits of their actions. It also illustrates that confidence, fairness in wages, irrational conclusions about money or ‘money illusion’, corruption, etc are all part of animal spirits. These behaviors can lead the market to failure.
The second part of the book focuses on eight questions that can’t really be answered with conventional economic theory but which make much better sense when animal spirits are evoked. These questions illustrate how these irrational animal spirits affect economic decisions and their answers deal with various economic failures.
This book gives a clear message that economists need to consider behavioral economics as it is directly related to the economy at large. Akerlof and Shiller suggested that economists should come out of their classic economics model and the government’s steady hand is needed to manage animal spirits.
Noble laureate Akerlof and famous author Shiller described the whole concept in a very humorous way and added short interesting anecdotes of their life which helped them to go inside people’s heads and make people relate with their thinking.
You won’t need any prior knowledge of Economics, Psychology, or Statistics to understand the book. It is straightforward and very easy to understand. The book is full of entertaining and witty stories and criticism of the current economic system. If you’re looking for a behavioral economics book but you don’t know or have any germane or knowledge about these subjects, this book can be your go-to.