Animal Spirits: How Human Psychology Drives The Economy and Why It Matters for Global CapitalismMikail Pehlivan
Neoclassical economics states that economic decisions about human behavior are based on figures, statistics, and assumptions, and that rational decisions made on the basis of these assumptions do not change under different emotional conditions. However, as Amos Tversky and Daniel Kahneman stated in their studies in 1974 and Prospect Theory in 1979, people have only limited rationality with heuristics and biases. While neoclassical economic assumptions prevents economics from being a true social science, behavioral economics tries to explain economic events by understanding people without isolating them from economics. The book entitled “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism,” written by George A. Akerlof and Robert J. Shiller and published in 2009, deals with the factors affecting individuals in the decision-making process with a perspective other than neoclassical economic theory. In the first section of the two-part book, five basic motives (trust, justice, corruption, money illusion, and stories) are explained, while in the second section, eight questions about the economy are answered within the framework of these animal motivations. The importance of the book is its inclusion of animal motives in the economy that current theory fails to do so. In the book, while the econometric and statisticsbased models used by neoclassical economic theory to explain assumptions and economic phenomena are criticized, behavioral economic theory is put in its place.
Hayvansal Güdüler: İnsan Psikolojisi Ekonomiyi Nasıl Yönlendirir ve Küresel Kapitalizm için Niçin Önemlidir?Mikail Pehlivan
Neoklasik iktisat teorisine göre, ekonomide insan davranışlarına ilişkin kararların rakamlar, istatistikler ve varsayımlar temelinde gerçekleştiği ki, bu varsayımlara dayanılarak alınan rasyonel kararların farklı duygusal koşullar altında da bir değişime uğramadığı ifade edilmektedir. Fakat Amos Tversky ve Daniel Kahneman2 tarafından 1974 yılında kısa yollar ve yanlılıklar ile 1979 yılında Beklenti Teorisi’nin ortaya koyulduğu çalışmalarla insanların ancak sınırlı bir rasyonaliteye sahip oldukları ifade edilmiştir. Neoklasik iktisadi varsayımlar ekonomiyi sosyal bir bilim dalı olmaktan uzaklaştırırken davranışsal iktisat ise insanı ekonomiden soyutlamadan ve anlayarak ekonomik olayları açıklamaya çalışmaktadır. Bu çalışmada incelenen, George A. Akerlof ve Robert J. Shiller tarafından yazılan ve 2009 yılında yayımlanan “Hayvansal Güdüler: İnsan Psikolojisi Ekonomiyi Nasıl Yönlendirir ve Küresel Kapitalizm İçin Niçin Önemlidir?” adlı kitap, neoklasik iktisat teorisi dışında bir perspektif ile karar verme sürecinde bireyler üzerinde etkili olan faktörleri ele almaktadır. İki kısımdan oluşan kitabın, ilk kısmında beş temel güdü (güven, adalet, yolsuzluk, para illüzyonu/yanılsaması ve hikâyeler) açıklanmakta; ikinci kısımda ise, ekonomiyle ilgili sorulan sekiz soruya bu hayvansal güdüler çerçevesinde cevap verilmektedir. Mevcut iktisat teorisinin yapamadığını yaparak ekonomiye hayvansal güdülerin de dahil edilmesi kitabın önemini ortaya koymaktadır. Kitapta, neoklasik iktisat teorisinin varsayımları ve iktisadi olayları açıklamada kullandığı ekonometri ve istatistik temelli modeller eleştirilirken, yerine davranışsal iktisat teorisi koyulmaktadır.
Neoclassical economics presumes that future decisions can be made rationally, assuming rational economic agents and complete and costless information in the market. Conversely, this book mentions that there are reactions in economics that cannot be explained by rational thinking, and it makes them explainable with five basic animal spirits. In the first part of the two-part book, five basic motives (i.e., trust, justice, corruption, money illusion, and stories) are explained; in the second part, eight questions about the economy are answered within the framework of these animal motivations. In this evaluation, considering the same plan, firstly, the animal spirits mentioned will be explained, and then the answers given to the questions will be interpreted. While the book is being examined, the examples provided to illustrate the concepts mentioned by the subject are generally not included in the book but were added by the author.
Animal spirits Trust: Confidence in the economy encourages consumption, investment, employment, and production. On the contrary, if fear prevails in the economy, individuals and companies spend less and save more. This situation causes a decrease in investment and employment.
Justice: At times, the motivation for justice outweighs economic concerns. For example, a worker may choose not to work at all rather than work for compensation that he or she thinks is unfair. The justice motive is so important that even if the economy is in a period of expansion, the source of layoffs can be the unfair economics policies.
Corruption: Bad events that remain in the minds of individuals affect the economy. Remembering these bad events takes the place of fear while removing trust. This situation causes an environment of panic in the economy.
Money illusion: The illusion of money affects many different aspects of the economy, particularly, wage contracts, debt contracts, and accounting transactions. People measure their assets and income according to nominal income rather than real income. The illusion of money stems from a lack of understanding of inflation and deflation.
Stories: The human mind tends to think about stories. Because of story-based human thinking and interaction patterns, telling individuals a story about a particular subject can strongly affect their thoughts on this subject. Stories believed to be true form the basis for economic behavior.
Part II: Eight questions and their connections
Why do economic recessions happen?: Past stories of economic failure are remembered with the increasing corruption stories before the crisis, which causes the feeling of trust to disappear. Therefore, the belief that economic policies are unfair to people begins to be felt. Later, consumer prices fall, but due to the illusion of money, no one accepts a decrease in their salary, so people become unemployed, and economies begin to shrink.
Why do central bank managers have power over the economy (to the extent that they use it)?: Central banks are the lender of the last resort to which banks may apply for loans. They can mitigate the effects of the crisis by preventing a decline in credit transactions at points at which confidence in the economy decreases. The main task of central banks in implementing such policies is to build confidence in the market. All of these show that animal spirits necessitate the existence of central banks.
Why are there people who cannot find a job?: The reasons for unemployment is partly due to animal spirits such as concerns for fairness, stories and the money illusion.
Why is there a trade-off between unemployment and inflation?: Animal spirits theory refutes the monetarist theory that there is a natural rate of employment and its claim that people do not have money illusion.
Why don’t people consider the future rationally in their decisions about savings?: People have difficulty focusing on the main benefits of savings decisions, namely, how much to save based on animal spirits. In this regard, characteristics such as trust in the economy, environment, age, and culture have an essential role.
Why are asset prices and investment flows so volatile?: Asset prices such as stocks are expected to depend on the basic indicators of companies such as profitability and indebtedness. However, most of the time, the animal motives of the investors come to the fore, and there are price changes in the assets depending on the herd’s behavior. Changes in asset prices directly affect people’s confidence and the economy.
Why do real estate markets go through cycles?: Increases in real estate prices are mostly based on stories that there is not enough land for the population, and the prices will always increase. If investors believe that they will never find real estate at the current prices, they continue to buy, no matter how much they have risen. In addition, the illusion of money is also an important factor here.
Why does poverty continue across generations among ethnic minorities?: It is stated that in addition to the injustices to which minorities are subjected, their perspective toward themselves also affects the continuity of poverty. Individuals’ habit of seeing themselves as a victim of society constitutes the biggest obstacle to self-realization. The perception that nothing will change no matter what leads to a poverty spiral.
In this book, the assumptions of traditional economic theory and the econometrics and statistics-based models used to explain economic events are criticized and replaced with behavioral economic theory. This book, seen as a break from tradition, describes how the economy actually works by doing what current economic theory cannot do. It does this by including animal spirits in the economy.