Acknowledgments My 2017 American Economic Association (AEA) presidential address, “Narrative Economics,” was published in the April 2017 issue of the association’s journal, the American Economic Review. Many passages from that presidential address have found their way, often with modifications, into this book. This book is strongly influenced by two books I wrote with George Akerlof, Animal Spirits (2009) and Phishing for Phools (2015). Another strong influence is the book George Akerlof wrote with Rachel Kranton, Identity Economics (2011). Narratives play a role in all these books. Working with George aided my thinking immeasurably. The research that underlies this book has taken place over decades. I acknowledge research support over the years from the US National Science Foundation, the Cowles Foundation for Research in Economics at Yale University, the Smith Richardson Foundation, the Whitebox Foundation via the Yale School of Management, and the James Tobin research fellowships at Yale. I thank participants in seminars at which I presented earlier versions of my AEA address, notably as the Marshall Lectures at Cambridge University and as seminars at the Bank of England, at the Toulouse School of Economics/Toulouse Institute for Advanced Study, and at the Yale University Department of Economics. Special thanks go to Bruce Ackerman, Santosh Anagol, Bob Bettendorf, Bruno Biais, Laurence Black, Jean-François Bonnefon, Michael Bordo, Stanley Cohen, Donald Cox, Robert Dimand, William Goetzmann, Emily Gordon, David Hirshleifer, Farouk Jivraj, Dasol Kim, Rachel Kranton, Arunas Krotkus, Naomi Lamoreaux, Terry Loebs, Ramsay MacMullen, Peter Rousseau, Paul Seabright, John Shiller, Thomas Siefert, and Sheridan Titman. Peter Dougherty, who stepped down in 2017 as director of Princeton University Press and is now editor at large, has been a formative influence on me for twenty years. He has always encouraged me to stay on a true path in my writing, a contribution that has been invaluable to me. He is now, after leaving the helm of the Press, still giving me editorial help. Research assistance was provided by Logan Bender, Andrew Brod, Laurie Cameron Craighead, Jaeden Graham, Jinshan Han, Lewis Ho, Jakub Madej, Amelie Rueppel, Nicholas Werle, Lihua Xiao, and Michael Zanger-Tishler. I am also indebted to other Yale students who made comments or suggestions: Brendan Costello, Francesco Filippucci, Kelly Goodman, Patrick Greenfield, Krishna Ramesh, Preeti Srinivasan, and Garence Staraci. My indefatigable administrative assistant at Yale, Bonnie Blake, read and edited the manuscript. Much appreciation, too, needs to be acknowledged for my very thorough and detail-oriented copyeditor, Steven Rigolosi. Some of the ideas in this book have come from my experience with writing more than two hundred newspaper columns, the equivalent of two books by word count. Since 2003, I have been regularly contributing columns to Project Syndicate; these columns are published in newspapers around the world, mostly outside the United States. Writing for Project Syndicate has helped me develop a world perspective and avoid an excessively US-centric view. Since 2007, I have also been a contributing columnist for the Sunday Business section of the New York Times. I thank my editors at these outlets, Andrzej Rapaczynski (Project Syndicate) and Jeff Sommer (New York Times), who have given me much attention. Finally, I thank my wife of forty-three years, Virginia Shiller, for her continuing support and encouragement of my work. Part I The Beginnings of Narrative Economics Chapter 1 The Bitcoin Narratives This book offers the beginnings of a new theory of economic change that introduces an important new element to the usual list of economic factors driving the economy: contagious popular stories that spread through word of mouth, the news media, and social media. Popular thinking often drives decisions that ultimately affect decisions, such as how and where to invest, how much to spend or save, and whether to go to college or take a certain job. Narrative economics, the study of the viral spread of popular narratives that affect economic behavior, can improve our ability to anticipate and prepare for economic events. It can also help us structure economic institutions and policy. To get a feel for where we are going, let’s begin by considering one such popular narrative, recently in full swing. Bitcoin, the first of thousands of privately issued cryptocurrencies—including Litecoin, Ripple, Ethereum, and Libra—has generated enormous levels of talk, enthusiasm, and entrepreneurial activity. These narratives surrounding Bitcoin, the most remarkable cryptocurrency in history as judged by the speculative enthusiasm for it and its market price rather than its actual use in commerce, provide an intuitive basis for discussing the basic epidemiology of narrative economics (which we explore in detail in chapter 3). An economic narrative is a contagious story that has the potential to change how people make economic decisions, such as the decision to hire a worker or to wait for better times, to stick one’s neck out or to be cautious in business, to launch a business venture, or to invest in a volatile speculative asset. Economic narratives are usually not the most prominent narratives circulating, and to identify them we have to look at their potential to change economic behavior. The Bitcoin story is an example of a successful economic narrative because it has been highly contagious and has resulted in substantial economic changes over much of the world. Not only has it brought forth real entrepreneurial zeal; it also stimulated business confidence, at least for a time.