a rational world, one might suppose that investors, trying to gauge what other
investors think other investors are thinking, will try to determine the right thing
to think about the speculative investments. However, investors do not necessarily
follow this strategy, even if all investors are rational and know that all investors
are rational.18 In addition, we have to account for the investors’ less-than-perfect
rationality and the investor irrationality expected by other investors.
In our 2009 book Animal Spirits, which was in many ways an expansion and
elaboration of Keynes’s ideas, George Akerlof and I used the beauty contest
metaphor to construct a theory of the emotional foundation of business
fluctuations in general. The beauty contest metaphor also applies to the
contagion of narratives. When we choose to tell a story to others, we base that
choice on our perceptions of how people will react to that story in their own
minds. We will likely spread a story, whether it is a story about boom-time
thinking or about economic despair, if we think that others will like the story
enough to want to spread it further. Even if we are spreading an economic
narrative for no other reason than trying to amuse ourselves, we are likely to
engineer our story to spread based on our model of others’ minds.
The stories that go viral are essentially random, just as mutations in
evolutionary biology are random. Traditional evolutionary theory suggests that
the mutations that survive and spread are those few out of many that are in
themselves advantageous for survival. But there is another branch to Darwin’s
theory, that of sexual selection, and it suggests that the winning mutations may
be just as random as the original mutation. Something like this randomness may
affect economic narratives going viral as well.
In his 2017 book The Evolution of Beauty, ornithologist Richard O. Prum
argues that sexual selection gives rise to fluctuations in the animal kingdom that
resemble speculative bubbles in economics. Perhaps the most famous example
of sexual selection in biology is the male peacock, which has very heavy tail
feathers that inhibit his activities. But these feathers are much favored by the
female of the species, which facilitates mating and the reproduction of more
beautiful tail feathers. Thus the female sexual choice may create an evolutionary
advantage for some useless characteristic in a process called a Fisherian
runaway, after theorist R. A. Fisher.19 The mechanism does not even require two
distinct sexes, as there is evidence for such sexual selection processes among
hermaphrodite species in which each individual has both male and female
organs.20 In both evolutionary biology and narrative economics, some kind of

ornament or display can become popular for no more reason than the fact that it
randomly began to be popular.

Irrational Impulses Inform Economic Narratives
Psychologist Jerome Bruner, who has stressed the importance of narratives in
understanding human culture, wrote that we should not assume that human
actions are driven in response to purely objective facts:
I do not believe that facts ever quite stare anybody in the face. From a
psychologist’s point of view, that is not how facts behave, as we well know
from our studies of perception, memory, and thinking. Our factual worlds are
more like cabinetry carefully carpentered than like a virgin forest
inadvertently stumbled upon.21
That is, narratives are human constructs that are mixtures of fact, emotion,
human interest, and other extraneous details that form an impression on the
human mind.
Psychiatrists and psychologists recognize that mental illness is often an
extreme form of normal behavior or a narrow disruption of normal human
mental faculties. So we can learn about the complexities of normal human
narrative brain processing by studying dysnarrativia, or abnormal narrative
phenomena. Neuroscientists Kay Young and Jeffrey Saver (2001) listed some of
its varied forms: arrested narration (the ability to tell only stories learned before
a brain injury), undernarration (the telling of vacillating, impulsive stories),
denarration (failure to organize a story in terms of an action-generating temporal
frame), and confabulation (the fabrication of stories that have little or no relation
to reality). Each form of dysnarrativia is related to injury in a specific part of the
brain.
Schizophrenia is a serious mental illness that can manifest as a disorder of
narrative, as it often involves hearing imaginary voices delivering a fantastic and
jumbled narrative.22 Hearing voices as a symptom of schizophrenia is correlated
with volume deficits in specific brain areas.23 The narrative disruption found in
autism spectrum disorder also is related to brain anomalies.24