Bringing Social-Psychological Variables into Economic Modelling: Uncertainty, Animal Spirits and the Recovery from the Great Recession

29 Pages Posted: 14 Mar 2014

See all articles by David Tuckett

David Tuckett

University College London - Centre for the Study of Decision-Making Uncertainty

Paul Ormerod

Volterra Consulting

Robert Smith

University College London

Rickard Nyman

University College London - Centre for the Study of Decision-Making Uncertainty

Date Written: Jnauary 12, 2014

Abstract

Conviction narrative theory (CNT), a social psychological approach to the way economic agents take deisions under Knightian uncertainty, together with the new methodology of directed algorithmic text analysis (DATA), provide the opportunity for a theory of economic sentiment or animal sprits grounded in empirical facts. Applying DATA to the full text of the daily Reuters news feeds from January 1996 through November 2013, we derive an “animal spirits” series for both the US and the UK economy. Both series inform the movements in real GDP over the period. For example, in both countries there is a marked downturn in animal spirits in June 2007, well in advance of other indicators of the coming recession. The series may also explain why the subseqeunt recovery has been exceptionally weak from a historical perspective.

Keywords: Conviction narrative theory, Directed Algorithmic Text Analysis, Macroeconomics, Big Data, animal spirits; Knightian uncertainty; Great Recession; recovery

JEL Classification: C82, D83, D84, E32

Suggested Citation

Tuckett, David and Ormerod, Paul and Smith, Robert and Nyman, Rickard, Bringing Social-Psychological Variables into Economic Modelling: Uncertainty, Animal Spirits and the Recovery from the Great Recession (Jnauary 12, 2014). Available at SSRN: https://ssrn.com/abstract=2408155 or http://dx.doi.org/10.2139/ssrn.2408155

David Tuckett (Contact Author)

University College London - Centre for the Study of Decision-Making Uncertainty ( email )

Gower Street
London, WC1 6BT
United Kingdom

HOME PAGE: http://www.ucl.ac.uk/psychoanalysis/unit-staff/david.htm

Paul Ormerod

Volterra Consulting ( email )

5 The Old Power Station
121 Mortlake High Street
London SW14 8SN
United Kingdom

Robert Smith

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Rickard Nyman

University College London - Centre for the Study of Decision-Making Uncertainty ( email )

Gower Street
London, WC1 6BT
United Kingdom

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