The Expert Witness: Animal Spirits - an approach to behavioral economics

with Gerard J. Senick

“Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory...amounts to little and sometimes to nothing,’ [British Economist John Maynard Keynes] wrote, ‘If people are so uncertain, how are decisions made?[They] can only be taken as a result of animal spirits.’”
–George A. Akerlof and Robert J. Shiller, “Animal Spirits” (Princeton University Press, 2009)

In this month’s column, we explore the revival of Keynes’s theory of “Animal Spirits” to explain the underlying psychological forces that drive the workings of the economy. We will discuss the concept of Animal Spirits in the field of Economics as well as its application to a branch of Economics that intersects with Sociology and Psychology known as Behavioral Economics. Also, for the amusement of our readers, we will quantify some of the qualitative elements that comprise the human psyche that Keynes referred to as Animal Spirits. By doing this in a lighthearted way, we hope to shed some light on the influences that the core of human behavior has had on the global economy and upon the political current that flows underneath.
As applied to modern Economics, Ackerlof and Shiller define Animal Spirits as “a restless and inconsistent element in the economy. It refers to our particular relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.” The notion of some vague prime mover in the economy is nothing new. For example, in “The Wealth of Nations” (1776), Adam Smith wrote of the economy as moving “as if by an invisible hand.” Therefore, we see the small step that Keynes took to develop the notion of Animal Spirits in order to describe that same vagueness. Keynes comments extensively that, though rational motivations govern most economic activity, human beings continue to act and react in the marketplace on a less-than-rational basis and with purely noneconomic motives. One might conjecture that some basic mental energy and life force, the fundamental “Id,” or a “Primitive Lust” of human nature, drives our behavior beneath the orderly veneer of a so-called rational economy. We will stay in the accepted realm of the social sciences and explore the fundamental Id.
The concept of the Id provides us with an adequately developed, useful tool that we can use in our attempt to measure the forces and resulting events of Animal Spirits. Wanting to be neither dismissive nor longwinded, let us begin by summarizing the necessary principles as developed by Sigmund Freud, Rudolf Steiner, and others at the turn of the twentieth century. We begin with the concept “I,” the basic point of our individual self. This emanates from that which we can define collectively as the cosmic all. For each of us, our “I” possesses its own unique set of uncoordinated instinctual trends. Freud and others referred to this set of trends as the “Id.” From this point, let us follow the path laid out by Steiner, who described the Id as having the ability and freedom (free will) to generate an “Idea” through our human minds. From here, Steiner explains that our minds set Ideas into “Action” by taking them through the human heart. To put it more concisely, we go from I to Id to Idea and finally to Action.
We now arrive at the juncture where we must consider an apparent duality that forms the unified whole of human behavior. Not wanting to lose any of our readers at this critical point, we will introduce an element of fun to our discussion. Rather than explaining this matter directly, let us instead play a game. For simplicity’s sake, we will structure our game like the many inventories that we have seen in various newspapers, magazines, and self-help books or possibly in the process of job applications. We will use a “tally sheet” composed of seven horizontal lines. After pausing for a moment to draw these seven lines, let us sketch ten equidistant benchmarks along each of these lines. Finally, from left to right, we will number each set of marks with the numbers one through ten. If you are reading this column while sitting on the beach, you can use your finger or your swizzle stick to draw in the sand.
Next, we ask our readers to look at pairs of statements and to circle one of the numbered marks on each line. In the following section, you will find seven pairs of statements. Within each pair, the two statements appear to be different and perhaps contrasting to each other. Using whatever method of judgment and selection is comfortable for you, please circle one of the numbers on each line, using one line for each pair of statements.
These pairs of statements are meant to provide us with end-posts for the purpose of identifying our preferred position in between them. Some of us may identify ourselves completely with one or the other statement in each pair. If you identify totally and agree with the first statement (Statement A), circle the number one (1). On the other hand, if you identify completely and agree with the second (Statement B), circle the number ten (10). However, if you are like many of us, you may agree with both statements in a pair, at least to some extent. If this is the case, circle a number near the middle or toward the statement with which you identify more strongly. All set? Here we go.
I. All of us have a preferred state of consciousness in which we feel most comfortable and desire to spend our time. Some of us prefer the concrete here and now of the world around us, whereas others prefer to spend some or all of our time in general meditation or in some form of prayer. Therefore, the two simplified statements are: A) I prefer a normal waking consciousness; B) I prefer a meditative or spiritual state of consciousness.
II. On the second line, we will measure our desire, willingness, or need to transform ourselves. Some of us may call this process of transformation a desirable growth, while others view such transformation as unnecessary or even destructive to our sense of self. Therefore, this pair of statements is: A) I prefer no transformation in order to stay centered in my organized, reality-based self; B) I prefer transformation through transcendence or some transpersonal experience.
III. This third item helps us to identify our preferred method of acquiring and maintaining knowledge. All of us have slightly different learning styles. However, let us consider this item as generally as possible. To simplify this process of measurement, we will let the statements be: A) I prefer to acquire knowledge through secular reasoning or religious belief; B) I prefer to acquire knowledge through higher inspiration and intuition.
IV. Next, we want to consider the means by which we view and rely upon authority for our beliefs and behavior. Some of us look to defined laws and codes, while others depend more strongly upon an inner sense of right and wrong. Therefore our fourth pair of statements is: A) I prefer to rely upon a religious institution, a scientific or philosophical school of thought, the government, social norms, or other external manifestations of authority; B) I prefer to rely upon my feelings, senses, instincts, intuition, or other internal manifestations.
V. This fifth item helps us to identify the breadth and scope of the philosophical, religious, and/or scientific principles to which we adhere. Some of us enjoy and thrive on a base or path of belief that is as wide as possible. Others do better with simpler, clearer, and narrower ones to guide us in life. Therefore, these two statements are:  A) I prefer one narrow authority of religious faith, scientific method, or other, such that anything beyond that principle or school of thought may be false and/or is to be avoided; B) I prefer a broad and universal base of beliefs drawing from many different teachings and philosophies.
VI. The next matter focuses on how we perceive and attempt to understand that which may exist beyond the purely physical world. It has to do with how we gain knowledge about subjects, either in time and space or in eternity and infinity, which we simply cannot measure and test. Some of hat exists is the matter around us that we can touch and feel. Some of us may believe in a spiritual reality beyond the physical world. Perhaps we believe that we cannot understand the all from its part and must consider it as a whole. On the other hand, we may abide in a sophisticated, complex view of the cosmos. This view may be one that suggests that everything emanates from something else or that the world unfolds like a dramatic play. This sixth pair of statements is tough to nail down. However, let us list them as follows: A) I prefer the view that the all is only what we can feel or touch. It is perhaps a physical reality plus a spiritual one, or maybe a collective all that only can be understood as a whole; B) I prefer the view that to understand the all we must have a complex vision of the cosmos, one by which it emanates from something else or unfolds and develops like a play.
VII. If you have made it past the sixth item, then welcome to the last one! This final item of identification is the biggie. It encompasses our concepts of the absolute reality of everything! Actually, this last item is relatively simple. Many of us believe in something. For some of us, it may be the presence of an external and separate prime mover or Supreme Being that we call God. For others, it may exist as the collective whole of Space-Time-Energy or some theory of everything. On the other hand, some of us may perceive everything as one, as a Universal Consciousness or an Omnipresent Divinity that exists within as well as without. Therefore, our last pair is: A) I prefer the belief of an external and separate mover or being; B) I prefer the belief of a Universal Consciousness or Omnipresent Divinity.
Congratulations! You have made it to the end of this inventory. Assuming that each line is numbered from left to right and that you have circled a number on each of the seven lines, you have done great. However, you are probably wondering what all of this means.
First, you need to add the seven numbers together. The total that places you at one extreme of the spectrum, that is closest to the “As,” equals seven. In contrast, a total of seventy places you at the other end of the spectrum, closest to the “Bs.”