Nobel-Prize Winner Draws Crowd for
Psychology’s Role in Economics Talk
On April 1, 2009, Nobel Prize-winning economist Dr. George Akerlof spoke
about the current financial climate to a mix of faculty, staff and students that
packed Frank Auditorium at the Smith School. Akerlof, the Koshland Professor of
Economics at the University of California, Berkeley, won the 2001 Nobel Prize in
economics for his contributions to the analyses of markets with asymmetric
Akerlof – who says he’s been thinking about big-picture economics since age
10 when his father lost his job – spoke about his new book, “Animal Spirits: How
Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.”
He detailed major themes of the book and how they relate to the worldwide
economic turmoil experienced since the collapse of the credit markets.
He talked about the role of psychology in macroeconomics – what revolutionary
economist John Maynard Keynes dubbed “animal spirits” – and how these “spirits”
drive financial events worldwide, from blind faith in ever-rising housing prices
to plummeting confidence in capital markets. He says the stories that evolved
played key roles in fluctuations in markets.
Take, for example, the “story” of the housing boom. Rapidly appreciating
housing prices had more and more people buying into the boom and created an
over-confidence in the market, and when left unregulated also spawned what
Akerlof called “snake-oil.” In this case, a shadow-banking system cropped up
that was built on borrowing short and lending long and ultimately led to the
global credit crunch.
Akerlof talked about the implications of the credit crisis and the government
alternatives for getting out of it.
“Creative financing may have gotten us into this crisis, but its genius may
get us out of it,” Akerlof said.
He entertained questions from faculty and students before concluding the
event with a book-signing for the first 75 students to register who received a
complimentary copy of his book.