Sample Book Review on Animal Spirits by Akerlof, George A. and Shiller

Akerlof, George A. and Shiller, Robert J. Animal Spirits: Human Psychology Drives the Economy, and why it Matters for Global Capitalism. Princeton, NJ: Princeton University Press, 2009.  pp. 231. ISBN 978-0-691-14233-3.

The authors of this book discuss the behavioral economics application to a number of crises in the economy that can be related to the US economic crisis. They also provide a remarkable and opportune critique of the traditional theories of economics. They challenge these traditional theories as the reason behind the global financial crisis and bring forth a new vision that can be applied in transforming the economy and restore prosperity. The traditional theories allege that individuals are rational, well informed and unemotional when entering into various transactions that shape the economy. However, there is nothing rational, well informed or unemotional about the behavior that results to collapsing of an economy. The authors hence apply key patterns of behaviors to explain big and complex phenomenon like the great depression

In the first part, the book gives a description of animal spirits as the non-economic motivators. The animal spirits are divided into five categories that comprise of confidence which has a pervasive role, then fairness that influences setting of wages and functioning of the labor market; corruption that mainly affects financial markets illusions of money including tendency to be fooled by inflation and stories which they could be meaning culture. They explain how the presence of these behaviors leads to market capitalism failures. The authors argue that since animal spirits influence human behavior, humans end up not being rational in their behaviors and hence human behavior cannot be predicted accurately by economic theories. In a nutshell the book explains the presence of animal spirits that ride and drive the ups and downs of the economy. The second part of the book provides answers to eight significant questions that deal with a number of economic failures. The answers assist in illustrating how economic decisions are affected by these irrational animal spirits. The animal spirits are considered highly provocative in economic decision making.

The authors have managed to give understandable explanations and comprehensive documentation so that any member of the general public who is interested in economic issues can relate with the book properly. The current economic issues in the world ensure that the book has a wide following since individuals can understand what is happening by reading the book. The evidence provided on human psychology that it influences the state of the economy is convincing to the reader as well as it gives a perspective that is different on the existing economic crisis. A broader view of economics has been explained by the authors unlike the traditional economists that provide a narrow based view as the root of all economic behaviors. The book is essential and significant in understanding some prevailing disadvantages associated with economic theory that relies on rational expectations. It is also useful in establishing a more realistic explanation of the world by incorporating animal spirits into macroeconomic theory as a major improvement.

The authors are seemingly making an argument against capitalism when they highlight flaws in the economic theories that have been widely accepted for a long time. Nevertheless, they have made it clear that they only do not support unfettered capitalism. They recommend that the government has a key role to play in the economy just like John Maynard Keynes did. They particularly state that the government should make sure that it has set appropriate conditions in which it would be possible for individuals to harness their animal spirits creatively so as good results can be obtained.

As clearly observed, the authors challenge economists to expand their economic analysis to come up with more assumptions that are realistic concerning human behavior. However although this recommendation is worthy, the authors do not give adequate information detailing the manner in which animal spirits would be accounted for in modeling human behavior so as to ensure there better decision making processes. Even if it is also good that explanations have been provided to show why traditional economic theories fail, it is necessary that variables are incorporated to models which will ensure the ability to make predictions is improved resulting to better policies and decisions. Nevertheless, since it is not easy to measure or categorize the animal spirits and not forgetting that they are complex and interactive variables, their effects can only be observed clearly after they have already played their role. The challenge is hence to find out how decision making models can incorporate animal spirits and the reader is left with a tough question to answer.

Akelof and Shiller clearly highlight that their book does not present explanatory answers to particular questions on how to handle economic crises happening today. They alternatively push for an understanding of animal spirits and awareness that government involvement is required in the market to ensure that economic crises are prevented from occurring again. Policy makers are provided with a back ground by the book which they can use to move forward. It is worthy to note that even if the book pushes for government involvement, there exist people possessed by the animal spirits who are part of the government commissions and committees. When developing new models of decision making it is necessary that animal spirits aspect is included, but how to go about it is not elaborated in the book.

Animal spirits is a book that is good for students who already have a background that is strong in the traditional economic theory because it provides the reader with a higher level of  realization concerning the world in which crises occur or are likely to occur. Elements of psychology and sociology would then be incorporated so that a person can have an extended understanding of economics. The book is not only useful in preparing an individual for classes in an economics but can help in preparing a person for a job in either government or public administration. The book would also be useful in interdisciplinary courses for students where the knowledge in economics, psychology and sociology is being applied in analyzing existing economic and social problems by stating the strengths and weaknesses of the different perspectives.

Akerlof and Shiller provide an interdisciplinary focus to improve a person’s understanding of the problems in the society. The book is important if one wants to find out a clearer understanding of human behavior and the kind of effect it has on the economy. So that individuals can find the study of economics more interesting the theories should have been based in more realistic assumptions. It would also be very useful in preventing economic crises in the future if the theories result to predictions that are more accurate. The authors also manage to replace an economy that has fallen with a new system with increased supervision and with new mechanisms that take into consideration the animal spirits power to enhance an economy.