Market narratives spread like epidemics and can turn on a dime. Some are even true

Traders work on telephones at the London Metal Exchange in London. You might think that markets move with changes in narrative, but Tom Bradley is inclined to think the opposite is true.Matthew Lloyd/Bloomberg

In a marketing class during my undergrad, the professor put two words on the board — attitude and behavior — and asked us to draw an arrow between them. Virtually everyone, including me, had it pointing from attitude to behavior. It seemed obvious, but our prof proceeded to show us why we were wrong. Experiences and behaviour shape attitudes, not the other way around.

I was reminded of that class recently when I saw another professor speak on a related topic. Robert Shiller of Yale University, one of the leading economic thinkers of our time, told the audience that his current research is on how narratives influence economic and market behaviour.

I believe he was referring to well worn storylines such as “the world is running out of (or is awash with) oil” or “China’s demand for commodities is insatiable (or peaking).” Narratives that spread like epidemics, whether they’re true or not.

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