It's a movie classic. The lovers are out for a walk when a villain dashes out of his house and starts fighting the man. The woman takes refuge in the house; having seen off his rival, the villain re-enters and chases after her. Yet the hero returns, pulling open the door so that the heroine can escape. The villain chases the lovers, until they finally flee, and he smashes his own home apart in fury.
Who are these characters? None of them ever made another movie, and you won't find them in any directories of famous actors. They are, in order of appearance, a large triangle (villain), a small triangle (hero), and a circle (heroine). The animated film was made in 1944 by the psychologists Fritz Heider and Marianne Simmel of Smith College in Massachusetts, whose paper 'An Experimental Study of Apparent Behaviour' is a milestone in understanding the human impulse to construct narratives.
At one level, their movie is just a series of geometric shapes moving around on a white background. It appears to lack any formal elements of story at all. Yet study groups (of undergraduate women) who saw the film in 1944 were remarkably consistent in their judgment of what it was 'about'. Thirty-five out of 36 decided that the big triangle was a mean, irritable bully, and half identified the small triangle as valiant and spirited.
That's a striking result: near unanimity on the emotional journey of a bunch of shapes. Then again, how surprising were these findings? Abstract animation existed as early as the 1920s, and experimental animators such as the Hungarian Jules Engel had already shown in sequences such as the Mushroom Dance in Walt Disney's Fantasia (1940) that very little visual information is needed to create characters and story. So perhaps research was just catching up with what the empiricism of art had already discovered.
I've found that stories get in the way of logical thinking in economics. When I try to explain that a tight money policy led to the recession of 2008, I have to contend with the fact that people have already interpreted the events of 2008 through a very different set of stories, ones much more consistent with Hollywood. (Indeed there is a new example in the theaters right now.)
People don't like my claim that the Fed needed a more expansionary policy because:
1. It would "bail out" foolish borrowers (or foolish lenders?)
2. I would simply be "papering over" deeper structural problems (or perhaps the failures of the Obama administration.)
3. It would be taking the "easy way out", not making the hard decision to endure a period of austerity.
4. "There's a price to be paid" for the reckless excesses of the housing bubble.
5. It would just be "kicking the can" down the road.
These metaphors do more to obfuscate than enlighten, but they appeal to our sense that society can be understood through stories. Trump and Sanders have cleverly exploited this human weakness, in their current campaigns.
At times it seems like the press is so enamored with stories that they don't even need any facts. Consider this assertion in a recent WSJ "story".
After substantially revaluing the yuan over a decade in response to protectionist threats, China now finds the strong dollar has left its currency grossly uncompetitive with the euro, the yen and all the rest. The alarming recent devaluation of the yuan, while a sensible response for China, is creating strains throughout emerging economies and deep uncertainty through all global supply chains.
When you look at the numbers this comment literally makes no sense. The Chinese yuan has been very strong in the last few years, and has strongly appreciated against the other emerging market currencies. But it seems to fit a deeply held narrative, which people cling to because it makes a good story. China's a "big triangle", trampling all over the "smaller triangles" like Brazil and Indonesia and Vietnam.
Banking is another example. In the recent crisis, the biggest problems were in the small and mid-sized banks. FDIC (i.e. we taxpayers) spent tens of billions of dollars paying off the depositors of the smaller banks, who made lots of reckless subprime mortgages. But it makes a better story to blame the biggest banks, so that's become the standard narrative.
Then there was the orgy of predatory borrowing. People lying about their incomes to get mortgages. But that doesn't make a good story, so let's make it "predatory lending." Sometimes their are competing stories, as when the right claims the police are a "thin blue line" protecting civilization from barbarism, whereas the left sees the police as powerful bullies, picking on the most downtrodden members of society.
Bernie Sanders sees a financial system where Grandma (Jimmy Stewart banks) was replaced by the wolf (Goldman Sachs).
In my view, Alice in Wonderland best captures the counterintuitive nature of monetary economics.
PS. I'm sure I stole part of this from the very first TED talk I ever saw, by Tyler Cowen.