narrative
Stories move markets
The rule
Prices are pushed as much by catchy stories as by real numbers. A gripping story can blow up a bubble long before the numbers ever justify it.
Where it flips
Not every strong story is a bubble. Some big stories turn out true and the price was right to rise. Calling every popular story madness makes you miss the real thing.
Shiller shows how markets are driven by stories that spread like a fever: 'this technology changes everything', 'gold always protects you', 'this IPO is the next big thing'. When a story catches on, people buy because others are buying, and the rising price seems to prove the story. This loop pulls price away from real worth and blows up a bubble. It bursts when the story gets tired, not when a bell rings. Notice when a story is moving you rather than real worth, especially around things with no cash flow like crypto and gold, and around the built-up excitement of an IPO.
A worked example
A crypto token with no earnings runs up tenfold on a viral 'future of money' story, pulling in first-timers near the top. Then the story cools and the price falls just as fast. [illustrative]
How to spot it
- ·you name out loud the story you are being sold
- ·you separate the price move from the story
- ·you take extra care around no-cash-flow assets and hyped IPOs
Robert Shiller · Irrational Exuberance; Narrative Economics