An "economic narrative" is a contagious story that has the potential to change how people make economic decisions, such as how, why, and where to invest; how much to spend and to save; and whether to buy a home or take a certain job.
An economic narrative, according to Robert Shiller, has the following characteristics:
- it reminds people of facts they might have forgotten
- It offers an explanation about how things work in the economy
- it affects how people think about the justification or purpose of economic actions
When these stories are virulent enough, they can have a significant impact on the economy. For instance, narratives in the latter half of the twentieth century that used efficiency to describe free markets helped contribute to a public reaction against regulation and government intervention in the economy.
Larger-scale narratives may comprise multiple smaller narratives. Shiller calls these “constellations.” Narratives within constellations reinforce one another; they are made more plausible in the context of the other narratives. It is unlikely that any significant economic event can be causally explained by any single constellation of narratives. Events are rarely so clearly explicable.
Confluences of narratives, or groups of narratives that do not seem associated with one another but that produce similar effects, can also help drive or explain a significant economic event.
As Shiller puts it, "new contagious narratives cause economic events, and economic events cause changed narratives."
Shiller, Robert J. Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Princeton: Princeton University Press, 2019.