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Book Review Series #5: Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism


by Srivatsan Manivannan


Akerlof and Shiller (2009) in their book titled Animal Spirits, revisit the Keynesian concept and widen its scale of application and interpretation. Plato in his Republic defines the virtue of an object as that which allows it to best fulfil its purpose – sharpness for a knife, the brightness of a light, and wisdom, courage, temperance and justice for a human being (Reeve, 2004). In this fashion, Shiller and Akerlof trace out the virtues of ‘non-economic motives and irrational behaviors’. Much as political psychology seeks to understand decision-making on the basis of beliefs, values and attitudes that people possess, economics has always sought to find rationale in the randomness of economic decisions. Animal Spirits deals with this in two parts.The first part characterizes five aspects of animal spirits, namely confidence, fairness, corruption and anti-social behavior, money illusion, and stories, and places them in conversation with economic decisions. The second part further engages with the ways in which these animal spirits answer eight crucial questions about markets and global capitalism.   

Akerlof and Shiller’s take on ‘animal spirits’ is that of an economic conception that refers to a ‘restless and inconsistent element in the economy’. Other definitions exist that offer variations to Keynes’ notion. Scholars have, in some cases, considered animal spirits to be ‘the optimistic disposition to face uncertainty’ (Dequech 1999: 420, n.12). Shiller and Akerlof, however, describe these ‘animal spirits’ to have a tryst with uncertainty – able to equally render us paralyzed in fear and help us overcome inertia. Furthermore, these animal spirits are based on trust, says Shiller (2009), who also referred to trust as ‘an emotional state that dismisses doubts about others’. Referring to the housing crisis which resulted from a “trust” in the mortgage and housing markets, leading to the speculation of prices which led to their rise, Shiller makes an argument for animal spirits that is characterized by the mood swings and irrationality of the average individual.  

Yet, while analyzing such a manifesto, there is a need to clearly define and distinguish between the foundations – what makes an action non-economic, and what is irrational? Could one consider the opposition of economic and non-economic in similar fashion to that of the political and the apolitical? If so, in a world where every action and every personal decision is political, could we, in a capitalist environment, make an argument that no action is ever non-economic? Ultimately, say Akerlof and Shiller, that Animal Spirits is an attempt to map the economy as a whole – both personal and public. Individual decisions about savings, investments, purchases and trust, whether we choose to buy land or a car, or even trust the government’s provision of pensions and public services, all are influenced by certain levels of unpredictability. This book attempts to bring to economics what Franz Kafka, Robert Musil and Hermann Broch brought to literature – the reign of uncertainty and the overthrow of structures of values (Kundera, 2003). Bounded rationality was the first step in the recognition that the reasonable is distinct in many cases from the rational, and both are usually different from ‘actual’ choice.

Two fascinating cases one can see within book are the chapters on money illusion and on stories. There is an argument made which says that workers truly bargain for nominal wages and not real wages, since what they care about truly is the relative value of their money with the prices of products and services at the time. Hence, workers are not willing to accept a pay cut even if prices would decrease allowing them to still live the same lifestyle. Both, the ones who provide wages and the ones who receive them, prioritize merely what their money can buy, contributing to a money illusion. With regards to stories, there is a review of literature and the attention given to narrative by humans. The flaw of considering economics as such a narrative, and the importance people give to stories such as those in the media, and the words of politicians and experts are an important driving force for changes in the market. This too is considered as a framework for understanding decision-making, with the use of animal spirits. Confidence could be considered in tandem with this, where confidence depends not merely on individual dispositions, but on how said individuals view and measure the confidence levels of others around them (Dequech, 1999). Such confidence levels depend on how people view the world and how the public understands and is informed by news media, popular discussion, and other ‘stories’.  

Ultimately, Akerlof and Shiller attempt to explain as to why crises still occur in a fashion largely unpredictable by conventional economic theories and viewpoints. Yet, while they reference the Keynesian understanding of animal spirits from an economics perspective, there are critiques with the manner of such reference. While it is admitted that their analysis of the same is beyond John Maynard Keynes’ application of animal spirits to entrepreneurial investment, they define irrational as that which exists outside the spectrum of rationality and limit their focus to aspects of such irrationality rather than the source of the same (Dow & Dow, 2011). Is there a pattern to the chaos of irrationality? However, an error of nomenclature arises. While Akerlof and Shiller’s usage of terms such as ‘irrationality’ fulfil the role of accessibility to common readers, they confuse two nuanced conceptions – that which isn’t rational, and that which is beyond the realm of rationality itself. There is hence a range of frameworks for understanding rationality that are outside the mainstream, yet their terminology seems to create an umbrella term for this, which is misleading (Dow & Dow, 2011). Hence, in a critique of Akerlof and Shiller, Alexander and Sheila Dow believe that animal spirits are neither random nor entirely explainable, but rooted in the subconscious. They argue that they are ‘neither rational nor irrational, but rather arational’ (Dow & Dow, 2011). Political and economic spheres influence this part of the subconscious, however, they can still be managed by the government. Dow and Dow hence try to locate animal spirits outside the epistemology of the rational, away from the realm of deliberation, into the momentary, instinctual, and emotional spheres. . According them, animal spirits ‘are only a part, but an integrated part, of the foundations for action’.  

Animal Spirits, in an interdisciplinary and pluralistic fashion, provides a well-thought lens with which not merely economists but all people can view the world. Yet, in considering the world of the arational, there exists a realm of nuance and detail that is left unexplored. How does one understand decision making driven by the subconscious that exists outside the constraints of rational and irrational? Is it possible for such action to be ever studied, or a pattern to be found? There is perhaps merit in asking these questions, even if their answers may not exist or may elude us forever. Perhaps in the pursuit of their answers, better frameworks can be developed for understanding human choice the true question of life, the universe and everything!


  1. Akerlof, G. A. & Shiller, R. J., 2009. Animal spirits: How human psychology drives the economy, and why it matters for global capitalism. s.l.:Princeton University Press. 2. Dequech, D., 1999. Expectations and confidence under uncertainty. Journal of Post Keynesian Economics, 3(21), pp. 415-430.
  2. Dow, A. & Dow, S. C., 2011. Animal Spirits Revisited. Capitalism and Society.
  3. Kundera, M., 2003. The Art of the Novel. s.l.:Harper Collins.
  4. Reeve, C. C., 2004. Plato: Republic. In: Plato: Compeltte Works. s.l.:s.n.
  5. Shiller, R. J., 2009. Animal Spirits Depend on Trust. [Online]  Available at:— [Accessed 2 March 2018].

Srivatsan Manivannan is a graduate from Jindal School of Liberal Arts and Humanities (JSLH), Sonipat.


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