What is an economic decision?

Keynes returns in fashion. It is therefore with a perfect sense of timing that George Akerlof and Robert Shiller publish a theoretical work developing a Keynesian vision of the economy and applying it to some essential problems. Although it is a theoretical work, there is not a line of mathematics throughout the book, which aims to be educational and accessible to all. The title – Animal spirit – summarizes the fundamental idea well: we are not Homines Oeconomici rational and omniscients and most of our decisions are influenced by our “ animal minds ».

In Keynes, the notion of animal minds is linked to uncertainty: since we know very little of what a building can bring in the City or a long -term transatlantic liner, our investment decisions are necessarily of “ animal minds », Said Keynes, by which he intends to impulse, a spontaneous need for action ; What Jack Welch, famous boss of General Electric sums up as follows: “ All my big decisions came from guts ». Straight from the gut is the title of his autobiography, which is the kind of work that any third cycle student should read, at least to avoid believing that companies make all their decisions on the basis of business plans aligning the centime near expenses and revenues for the next ten years. In another passage from the book, Welch says that he wanted to meet those responsible before any strategic decision, not so that they will present their tables of figures to him, but to probe their soul, study their body language, gauge them psychologically.

Akerlof and Shiller specify the notion of animal minds and expand it to all the psychological motivations from economic behavior that distance agents from what would require the search for the maximization of our individual material interest. They distinguish five elements, which can act independently or combine: confidence, equity, corruption, monetary illusion and stories.

Confidence is an essential determinant of investment in a situation of uncertainty, as Keynes had already pointed out. In the same way, our reading of events that affect the economy is interpreted in the context of “ stories Who come to validate and give an appearance of rationality to our actions. But these “ stories Can change suddenly, opinion can stop believing in it, as the current situation shows: that we think of the discourse held on the role of finance and financial globalization, for example, yesterday supposedly supposed factor of growth, now doomed to gemonies.

In general, any bubble is accompanied by the production of a discourse of legitimization of valuations, as absurd as they are. To a certain extent, the neoclassical model itself is also a story, even a series of stories relating to the way in which individuals reason and decide.

Equity

The feeling of equity is also an essential phenomenon. A famous experience of experimental economy highlights this influence well (it is not told in the book, even if the two authors often rely on the experimental economy, most of the results of which show how small the hypothesis of instrumental rationality): a sum of 100 € is to be shared between A and B. has decides the distribution key and B decides if it accepts it or if it refuses it, in which case does not receive anything. “” Logically », That is to say if humans reasoned as Homo OuconomicusA should offer a 99/1 sharing, which B would accept, because it is better to have only one than having nothing. In practice, however, whenever this experience is repeated, the distribution observed oscillates around 60/40, which is generally interpreted as follows: a grasping more than B, because it has the power to do so. But B prefers to sacrifice his gain if sharing seems too unfair (and perhaps he himself has taken a feeling of injustice which prevents him from going too far in inequality). The feeling of equity therefore turns upside down the distribution of income.

Without quoting it, the two authors thus regain the essential intuition of John Hicks, who believed that relative wages essentially depended on a variable social standard in time and not on marginal productivity of work. Here again, the fertility of this analysis to interpret the current situation, in this case the reversal that takes place on the remuneration of the bosses and traders, is striking.

Savings

In the second part of the book, the two authors apply their analysis to eight essential economic questions, such as unemployment or volatility of asset prices, in a series of short chapters. It is often more a question of giving some tracks than of dealing in depth the subject. A particularly interesting study is devoted to savings – so important, short and in the long term, for growth. The traditional neoclassical economy deals with the savings decision as a rational decision resulting from an intertemporal arbitration (between consuming immediately or later). It is easy for authors to show that this conception does not resist analysis, because humans experience a great difficulty in attaching importance to the distant future ; So that the savings rate can vary considerably from one period to another. Thus, savings for retirement is generally insufficient in the United States, while it is very high in China or Singapore (perhaps too much, moreover, a question that the authors do not raise). The explanations fall under visions of the world (stories), institutional factors (public policies, in particular) and cultural (in relation in particular with the feeling of equity) ; In short, “ animal minds ».

It is not a question, in the minds of the authors, of throwing on board the standard theory, whose hypotheses can suit the representation of many economic phenomena. However, they conclude, a macroeconomics taking into account animal spirits is more relevant than a macroeconomics that neglect them.