3 - Narratology and Other Disciplines

Summary

Chapter 3 first provides a brief discussion of the way economists and finance researchers treat novelty and narratives in models describing outcomes in asset markets. Emphasis is placed on the treatment of true uncertainty. The remainder of the chapter surveys the relevant research from disciplines outside of economics and finance investigating narratology, or the study of narrative dynamics. Findings from the fields of neuroscience, cognitive psychology, sociology, anthropology, and linguistics are presented that shed light on the Novelty-Narrative Hypothesis for understanding stock market instability. The findings referenced are from both experimental and natural settings. The chapter discusses the narrative mode framework exploring the unsystematic part of the mind used to imagine possible states of the world. The chapter advances the view that story-based thinking through narratives brings meaning to unique experiences that inform day-to-day decision making, especially when the surrounding environment is undergoing change. The importance of endogenous emotions for dealing with novelty and uncertainty is highlighted throughout the chapter.