Narrative economics: how stories go viral and drive major economic events

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Abstract

A well-known proposition of modern psychology, termed the representativeness heuristic by authors Daniel Kahneman and Amos Tversky (1973), is that people form their expectations based on the prominence of an idealized narrative rather than estimated probabilities. Shiller gives the example that we judge the danger of an emerging economic crisis by its similarity to a remembered story of a previous crisis rather than by any logic.