prateek raj is an assistant professor in strategy at the Indian Institute of Management Bangalore (IIMB) and IIMB Young Faculty Research Chair.
Published June 26, 2019
Good policy should emerge from a clear-eyed view of the facts. Yet the U.S. seems to be moving away from this ideal, even in areas grounded in hard science, such as the public health benefits of vaccinations, the safety of GMO foods and the need to address climate change. People, it turns out, have different ideas about the facts.
Indeed, the deepening chasms among beliefs of how American institutions should govern seem to have nothing to do with facts and everything to do with the stories told by people in power. Now, more than ever, social scientists should be focused on how we arrived here.
The Marketplace for Ideas
Bear with me while I offer a different way of thinking about the social sciences. Information and ideas can be viewed as complements that together create understanding about the world. Information in itself is a lump of facts (data or otherwise). Understanding develops when information is organized in a specific order that follows a set of rules (a model). A starry night sky is a collection of dots for the untrained eye, but for astronomers the color, intensity and movement of those dots tell us about the universe.
These models or mental representations are ideas that shape how we process information. By influencing how we perceive information and reach an understanding, ideas inform our actions. If two people have adopted different ideas, they can reach a different understanding and hence take different actions — even if they receive the same information.
For example, if you believe that the Earth is flat, then you will look at the sunset and have a very different understanding of the phenomenon than a college physics major informed by the past 400 years of scientific ideas. Hence, ideas can be a source of heterogeneity in how people behave, and they are increasingly of interest to economists.
While information can be transmitted in bits, ideas are mental representations that can be conceptualized like products competing in a marketplace. And most economists have neglected that one marketplace.
Economic historians including Deirdre McCloskey (University of Illinois) and Joel Mokyr (Northwestern) are exceptions, emphasizing the importance of ideas in creating the modern world. Mokyr’s book Culture of Growth lays out a vision of culture as a menu of ideas in which entrepreneurs compete in a marketplace to add new ideas to the menu. Some cultural entrepreneurs succeed more than others in this regard, and a rare few like Buddha, Muhammad, Einstein and Newton are disruptively successful in bringing about a paradigm change.
Ideas, of course, are not products competing on price. The value of an idea is opaque before it gets adopted by the public. Hence, the public can know whether the idea can create useful understanding only by adopting it. To motivate people to adopt an idea, a cultural entrepreneur needs to be persuasive — a storyteller with a narrative for their audience. McCloskey emphasized the role of rhetoric in economics. Mokyr gave a central role to persuasion in conceptualizing the marketplace of ideas, writing that “in this market people try to persuade an audience of the correctness of their beliefs and the merit of their values and to provide information to others who do not have it.”
Narratives as the Face of Ideas
To understand how ideas propagate, Robert Shiller has emphasized the role of narratives. He argues that memes and their contagions should be treated seriously and systematically when attempting to understand an economic phenomenon.
Narratives are different from ideas because they go beyond being mental representations of the world. They are stories, rich with emotive symbols and abstractions. Hence, they can be persuasive and contagious.
Narratives are different from ideas because they go beyond being mental representations of the world. They are stories, rich with emotive symbols and abstractions. Hence, they can be persuasive and contagious. For example, the Laffer Curve is a simple inverted U-shaped line, first drawn (according to the myth) on a cocktail napkin. It illustrates that, when tax rates exceed some specified level, government revenues actually fall because people have no incentive at the margin to work or invest.
The Laffer Curve is perfect cocktail party kindling to spark a conversation on taxes. As Shiller notes, the Laffer Curve helped in propagating the ideas of limited government and low taxes during and after the Reagan era.
Narratives are thus the gateways to ideas that can attract an audience’s attention. They have become more consequential over time because the marketplace of ideas has become ever more competitive.
The Supply of New Narratives
Traditional societies generally revered the wisdom of their ancestors. In the pre-modern world, the pace of change was slow, and ideas encapsulated in the form of narratives passed almost intact from generation to generation. These were good mental representations for understanding a relatively stable world. In a recent paper, Paola Giuliano of UCLA’s business school and Nathan Nunn of Harvard found that populations with ancestors who lived in more stable environments place greater importance in maintaining tradition today and also exhibit more persistence in their traditions over time.
A period of major disruption began in the 1450s, with Gutenberg’s invention of the movable type printing press. In the world before fast, flexible printing, information and ideas flowed vertically from parents to children, priests to congregations, teachers to students, lords to subjects.
Gutenberg opened the possibility of mass diffusion of information and ideas, packaged as narratives. The printing press radically expanded the scope in which horizontal diffusion of information could occur far faster and wider than sharing stories in churches, coffee shops and bazaars. Books that were once accessible only in a handful of libraries were now available in print en masse to the public. There was a mushrooming of new narratives, many of which deviated from incumbent ideas in the market.
The 95 Theses, which may have become the most famous pamphlet ever, was posted in October 1517 by a relatively unknown priest (Martin Luther), and its critique of the Catholic Church went viral. While Luther’s ideas on Christian faith were broad, he focused on one issue in his pamphlet: the Church’s selling of indulgences. Within months, the pamphlet had been reprinted and shared throughout Europe, triggering what was known as the Protestant Reformation that created a permanent chasm within Christianity.
In contrast, in India, printing technology was not adopted during the 15th and 16th centuries. There were prominent reformist Bhakti movements under way during the period, but they could not gain the transformational scale of the Protestant Reformation. The Indian languages did not have an alphabetic script, and the resin-based lithographic printing suitable for printing the hybrid Indian abugida script was only invented at the end of the 18th century. But once lithography was introduced to India in the early 19th century, it did lead to a rise in printing in local languages that coincided with the rise of nationalist and social reformist movements in India.
The Demand for New Narratives
Expansion of the supply of information driven by new technologies is a necessary but insufficient condition for disruption in the marketplace for ideas. Printing had been invented in China several centuries earlier than in Europe, but it failed to make an impact on a similar scale (which, admittedly, may have been due in part to China’s logographic script). Even within Europe, not all parts were equally transformed. Italy was the epicenter of Renaissance ideas. But it wasn’t transformed to the same degree as it was in northwestern Europe, which became the cradle of “bourgeois culture.” Northwestern Europe as a region was uniquely suited for change, as it was hit not only by a supply shock of the printing revolution but also by a demand shock of discovery of new sea routes.
New narratives are more persuasive when they promise a better understanding of the world. The late 15th century saw another disruption in Europe: the discovery of new sea routes to other continents. The contact of Europe with the rest of the world significantly expanded trade and brought new goods and experiences. In his book Matters of Exchange, Harold Cook of Brown University argues that as the Dutch traveled in the age of exploration, they discovered gaps in the knowledge of their ancestors. As material conditions changed with expansion in trade, the traditional wisdom that had passed from ancestors was no longer sufficient.
One key difference between early modern Europe and elsewhere, according to Mokyr, was the lack of reverence for ancestors. Europeans, especially those most transformed by the age of exploration, began to believe their own generations may be smarter and wiser than the past. When this break with tradition took place, something was needed to replace the guidance it offered. Hence, there emerged a demand for new ideas and an opportunity for new cultural entrepreneurs.
What This Means for Us
The modern world is distinguished from the past because the material realities of the world transform within a generation. The process of rapid change that began in northwestern Europe in the 16th century is in full swing today around the world. And with the rise of the internet in the past few decades, the demand for, and supply of, information has once again been disrupted. So, we find ourselves in an age of disruption.
Predicting winners in this contemporary marketplace of ideas is difficult. The 2016 U.S. elections were testimony to its unpredictability: against the odds, Donald Trump’s colorful MAGA narrative won the day over Hillary Clinton’s wonkish policy-driven narrative.
If social scientists — including economists — aim to contribute to understanding this age of disruption, they first need to acknowledge how central narratives are for the propagation of the ideas through which people perceive their reality. We need to think of ideas in terms of a marketplace, and conceptualize their supply and demand, and their propagation through narratives. Once narratives become regular features of social science, we will be in a better position to understand how people actually behave.