Animal Spirits and the Great Crash: Finding Emotion Behind Economic Outcomes

Tue, Nov 6, 2018, 4:30 pm
JRR 399, Ruehl Family Room
Open to the public
Kahneman-Treisman Center for Behavioral Science & Public Policy
Julis-Rabinowitz Center for Public Policy & Finance

John Maynard Keynes composed the General Theory as a response to the Great Crash and Great Depression with all their devastating consequences on the U.S. macro economy and financial markets, as well as the rest of the world. The role of expectations that his new theory set out has been widely accepted. The role he attached to “animal spirits”—the role of human emotion in human cognition—has remained more controversial. To look at the role of emotion in the economy at the times Keynes wrote, Ali Kabiri (University of Buckingham) and collaborators analyzed millions of digitally stored news articles from the Wall Street Journal and The New York Times from the period with algorithms that scan for emotion in narratives to test whether human emotions influenced the economy distinctly from traditional economic fundamentals. They find that shifts in the emotion series they measure caused changes in US GNP and industrial production. Furthermore, this result is also found over 1933-1984 at meaningful economic levels. During this talk, Kabiri will discuss these findings and the implication that emotion plays a formative and predictive role in economic outcomes, distinct from economic fundamentals.