Narrative Economics: Reframing the Roles of Storytelling and Behavioral Economics

By Susan Fader, FaderFocus, Teaneck, NJ, susanfader@faderfocus.com

Storytelling and behavioral economics can play central roles in market research—moving storytelling from an output role to stories as input. Narrative economics will reframe how you think about and use both.

Just as behavioral economics migrated from the world of financial economics and was modified and adapted by market research, market researchers should start integrating narrative economics into research design—how they listen to and analyze insights, and how they view and use storytelling.

First, some background on the evolution of economic theory. Classical economics made the assumption that people make rational decisions. Behavioral economics’ premise is that people don’t always make rational decisions. However, Robert J. Shiller, the Nobel Prize winning economist and the father of narrative economics, emphasizes that economic decisions can appear to be irrational or perplexing if you don’t contextualize the events happening around them; thus, narrative economics provides the viewing lens and tools to do this. Shiller explains that narrative economics is “the study of the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations.”

Therefore, in adapting narrative economics to market research, I believe that we should reframe how we think about behavioral economics; that it should be recognized as an outsider’s (the market researcher’s) external perspective/judgement call on whether the person being studied is making a rational choice or decision. Narrative economics, in contrast, should be viewed as the insider’s (the person who is being studied) perspective of why the choice or decision may be rational to them.

In market research, the current role of storytelling is generally narrowly focused, primarily on storytelling as output, as part of the deliverable function of distilling and sharing what was learned during the research process. If people are asked to share stories, primary evaluation and interpretation of the story’s value is based on whether that story can be featured as output in the reporting as a way to help sell a message. In contrast, narrative economics focuses on stories as input. Output stories tend to have a tight beginning, middle, and end structure. Narrative economics focuses on stories as input. As such, Shiller believes that we need to expand how we think about stories. For him, narratives can be short justifications for an action or belief, and they also can be long stories describing many things over long periods of time. He emphasizes that stories cover a wide spectrum in that, “A story may be a song, joke, theory, explanation, or plan that has emotional resonance and that can easily be conveyed in casual conversation.”

Studying the narratives or stories of those being studied, the people with whom they associate, and events within their circle of peers, can provide insight into behavior, perspectives, decision-making, and personal choice, and in turn change baseline assumptions.

Narrative Economics as a Diagnostic and Predictive Tool

Shiller offers narrative economics as a predictive tool of future economic events, but to prove his theories, he looked backward and used narrative economics as a diagnostic tool, giving market researchers two ways to use narrative economics. In his 2017 presidential address before the American Economic Association, he described how narrative economics could answer a question that had stumped economists for generations—why the 1929 stock market crash unleashed the decade-long Great Depression, even though two days after the crash on October 30, the market rebounded and regained half of what had been lost. In addition, the 1929 downturn was not necessarily worse than the short-lived 1920-1921 economic downturn. So, why did the 1929 crash lead to such devastating economic results?

Shiller turned to historical narratives—newspaper articles, diaries, stories, books, newsreels, sermons—about what people were thinking and saying about the decade or so prior to the crash. The two years leading up to the 1920s saw the end of World War I, which killed tens of millions of people, overthrew monarchies and governments, and redrew the map of Europe. It also saw the Spanish Flu pandemic, which by conservative estimates killed more than 50 million people worldwide. Adding to this terror was the age group making up the majority of the dead. In contrast to the very young and old who had historically been most vulnerable, those in their twenties and thirties were dying at the highest rate. Right after this, additional dramatic changes came with hemlines going up and women getting the right to vote in the United States.

So how did all this lead to the Great Depression? Based on his review of historical narratives, Shiller writes in his book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events, “Ideas about morality may have played a role. The 1920s had been a time not only of economic superabundance but also of chicanery, selfishness, and sexual liberation. Some critics viewed these aspects of culture negatively but were unable to make a case against this putative immorality until the stock market crashed. Sermons preached on the Sunday after the crash, November 3, talked about the crash, attributing it to moral and spiritual transgressions. The sermons helped frame day-of-judgement narratives about the Roaring Twenties.”

Using narrative economics, Shiller found from the mid-1920s onward that many narratives from those in power had begun to predict an economic downturn, which took years to happen. When the Crash of 1929 did happen, many people in power initially thought it could be used to prove that they had been right about society needing to reform. Also, based on the 1920-1921 economic downturn, they were not worried because they thought the downturn would quickly self-correct. Instead, based on the narratives that Shiller uncovered, it became a self-fulfilling prophecy, leading to a general lack of interest in buying things, thus impacting businesses and snowballing into an economic downturn. Interestingly, Shiller points out that “Google Ngrams shows that the term Roaring Twenties was rarely used in the 1920s. Use of the term, which sounds a bit judgmental, did not become common until the 1930s, when the broad moral story line in the Great Depression gradually morphed into a national revulsion against the excesses and pathological confidence of the 1920s.” This framing helps to explain why the economic downturn was so severe.

Setting Context and Background on Demographics

So, how can a market researcher use narrative economics? A starting point is getting a better understanding of your target demographics. Narrative economics can help provide context and background on demographics that you are interested in; therefore, market researchers should immerse themselves in narratives from those people. You can read stories of people you are interested in to understand how they view themselves and the world. Examples are J. D. Vance’s Hillbilly Elegy, which gives insight to choices and decision-making in the world of poor/lower middle-class Rust Belt whites. Those decisions may appear illogical to an outsider (behavioral economics), but logical to them (narrative economics); e.g., being close to family is very important and prevents many who are jobless from moving from a place where there are no jobs to a place that has jobs, even if they are destitute. Ta-Nehisi Coates’ Between the World and Me lets us listen in while a black father prepares his black teenage son for the realities of the world he lives in. Esmeralda Santiago’s When I Was Puerto Rican captures the dramatic changes that many Puerto Ricans experience when they come to the mainland U.S.

Podcasts are also a very great source for getting the world view of almost any specific demographic you may be interested in.

However, you need to be careful in how you interpret and categorize what you read or hear. Two different demographics could appear to have the same story and be part of the same tribe, but are not. I believe that Timothy Egan, in his February 2019 New York Times op-ed article, mistakenly presented Hillbilly Elegy and Tara Westover’s Educated as representing the same tribe. While they both may be about poor whites who live in geographical areas that are politically conservative, the subjects of the two books are very different in how they see themselves and perceive the role of government. Westover’s family lived off the grid, with her father’s fear of government isolating her and preventing her from interacting with anything associated with government, including going to school of any kind. In J. D. Vance’s world, no one was in hiding and government handouts played a major economic role.

Westover and Vance’s families were members of very different tribes, and narrative economics can help you better understand how two people, who may appear to be demographically similar, are members of different tribes. For example, think of moms, who by using traditional demographic measures, appear to be in the same tribe—same age, ethnicity, religion, relationship status, and number of children, and similar household income and jobs. However, we need to incorporate their world view, which can impact how they make decisions. One mom’s motto of motherhood is “I go with the flow” (laid back), and the other mom’s is “I will do anything for my kids” (helicopter mom). These are two very different perspectives that will impact how they make decisions.

If you want to read more about tribal analytics so you can better understand how to interpret narratives, the political pollster John Zogby wrote an insightful and very helpful book, We Are Many, We Are One: Neo-Tribes and Tribal Analytics in 21st Century America.

Rethinking How to Data Mine

As part of gathering narratives, you may have to approach data mining differently, especially if you are using it as a predictive tool. At a 2019 Insights Association/QRCA Metropolitan NYC Chapter seminar, during a Google presentation it was mentioned that there are tens of thousands of phrases/ways of talking about brushing your teeth and toothbrushes. Not surprisingly, approximately the top ten account for over ninety percent of all mentions. However, Gretchen McCulloch’s new book, Because Internet: Understanding the New Rules of Language, points out what is wrong with searching only using the top mentions. One of the book’s most fascinating sections raised a serious red flag to me as it discussed the assumption that online words/phrases/visuals have universal meaning and how this fallacy could negatively impact data mining findings. McCulloch shares multiple examples of how there are still significant U.S. regional and ethnic group online differences in choices of words/phrases/visuals usage and meaning that are much more serious than the pop/soda/cola word choice differences. In the online world, the same word or phrase could have very different meanings depending on where it originates. McCulloch also traces the path of how phrases/visuals that may originate in one community can bypass whole sections and demographics of the U.S. when they jump to a similar demographic community, e.g., Hispanic Los Angeles to Hispanic Miami. Then over time, they might migrate more into the mainstream.

How to Use in Sessions

Narrative economics will also have you rethinking baseline assumptions. When designing a research study, we are almost racing against the clock—where we have more material than we have time to cover in the session. Narrative economics emphasize that a major roadblock to getting insights is when you start from the wrong place. Many times you are tempted to skip ahead with the belief we already know that and don’t need to ask.

However, backstories are narratives that provide context by allowing people we want to hear from frame the story. Sharing stories in session is very helpful, but most people, when put on the spot, have a very hard time sharing one. That is why providing them with a framework is so important. For example, in a study with heavy users of fabric softeners, who were doing more than ten loads of laundry a week, we didn’t start the discussion talking about fabric softeners, we started in the world that fabric softeners reside—doing laundry. As pre-work, even though the client had done many previous studies focusing just on that and felt that they already knew the answers, we asked people in the week prior to being part of the discussion to observe themselves doing laundry and then identify the three things they liked best and liked least about doing laundry. While our pre-work exercise did not really uncover anything new about the likes and dislikes about doing laundry in general, something left out of some heavy fabric softener users’ input stories was very insightful. Some never mentioned fabric softener. Our client had assumed that all would, because they were heavy fabric softener users. Finding out why they hadn’t provided some very helpful insights. If we had not used storytelling as input immediately after the introduction and instead had begun asking them about their views on fabric softener, we would have had a very different discussion and takeaway from the research.

Storytelling upfront as an input story exercise can also act as a self-diagnostic ethnography tool to help the person participating in the research better understand his or her own behavior, while helping the market researcher better understand how to communicate. For example, in a hernia mesh messaging study of general surgeons who did many different types of surgery, the client told us that in past research the surgeons had focused on the technical merits of the mesh, so they had created messaging around that. That messaging was not working. Just like the fabric softener study, we broadened the discussion. We had them create an input story about all the surgeries they did and thus got their perception of hernia surgery vis-á-vis other surgeries they do. In a quick exercise, we gave them a sheet of paper with a little red heart in the middle and asked them to write down all the surgeries they do—those they liked the best close to the heart and those they didn’t like further away. When done, we asked them to circle the three they liked the best and the three they liked the least. We then asked them to tell us what they had in common. This elicited comments such as, “OMG, so that is why I hate hernia surgery,” as well as, “Wow, I never really thought about why I liked some surgeries more than others.” Giving them a structure to create an input story stimulated self-awareness and led to deeper discussions and a new emotional positioning versus the previous functional positioning.

Narrative Economics Wrap-up

In ancient Greece, a newcomer to a meal needed to share a story that was meant to entertain, but more importantly, meant to help give the host insight into who this newcomer was, their beliefs, and perspectives. Using the narrative economics model, market researchers should begin to see the demographics they are interested in as newcomers to the table.

  • Do your homework
    • Read people’s stories/listen to podcasts.
    • Read different narratives of events that are relevant.
    • Data mine differently.
  • Recruit differently
    • Overlay tribal analytics and self-perception into the recruiting process.
  • Pre-work
    • Use storytelling as an input to provide insight and perspectives versus a data collection tool.
  • In-session
    • Integrate storytelling as input into methodology.
  • Listen differently
    • To nuances in the narratives and rationalization for behavior and choice