What drives people and the economy?

I’ve been really enjoying reading a few books over the last couple of years about behaviour (see my blog on intrinsic motivations and what drives us) but there’s a couple I haven’t got round to blogging about, so I thought I’d do so here. The first is Redirect: the surprising new science of psychological change by Timothy Wilson, which I read along with most of the rest of my colleagues a couple of years ago. It’s an excellent, ground-breaking and fascinating book and some of the analysis of how we are affected by our behaviour particularly chimed with me.

One of the myths it busts is that when we’ve had a traumatic event it’s actually best not to recount it, but instead to take a step back and dispassionately analyse it. This logic also means that we have to curb a natural tendency to try to understand the good things in life so that we can experience them again, because by doing so this actually reduces the pleasure we get from these events. There’s also some really interesting discussion of optimists, which I found fascinating as an inherent optimist myself. He argues that what sets optimists apart is that they have better coping strategies in the face of adversity – confronting problems rather than avoiding them, planning for the future, focusing on what they can control and changing and persisting when they encounter obstacles.

The good news is that people can be trained to be more optimistic using what’s called story-editing techniques, where writing exercises can help people re-write the stories they have about themselves to change negative patterns of thought. This is so powerful, he argues, because we are what we pretend to be, so we must be careful about what we pretend to be.

Wilson also stresses the importance of making time in our lives to pursue what gives us a sense of purpose. Yes it seems obvious advice, but he argues that people often forget to follow it when choosing careers or how to spend their free time. This is echoed by all the reading I have been doing on happiness (see my blogs on Creative Work, Flow, Happier at Home and Can you learn to be happier from a book?)

The second book on behaviour Animal spirits: how human psychology drives the economy and why it matters for global capitalism by George A Akerlof and Robert J Shiller I read a few weeks ago. It takes a look at how behaviour influences the economy. It’s really interesting and argues that the proper role of government in the economy is to ‘set the stage’. The stage should give full rein to the creativity of capitalism, but it should also countervail the excesses that occur because of what the authors call ‘our animal spirits’.

They argue that the working of the economy and the role of government cannot be described solely by economic motives and that it’s critical to understand confidence, fairness, and opportunities for corruption and ‘money illusion’. I agree that this description of the economy fits the facts better than macroeconomics, which leaves out irrational behaviour and non-economic motives. As with the other books on behaviour that I’ve enjoyed, it also stresses importance of creating a shared story, whether in politics or in a relationship.

So if you enjoy a bit of behavioural psychology or behavioural economics I’d recommend giving these two a go.