Narrative Economics

Good Morning,

Last week had tons of news with the impeachment trial, various economic news coming out, and the new Tesla truck following the heels of the unveiling of the electric Mustang SUV. Late in the week, Wall Street Journal published an article detailing that Bridgewater (one of the biggest hedge funds in the world) placed a trade which would signal that the US economy is going to crash in the first quarter of 2020. MarketWatch picked up the story because of Ray Dalio (founder of Bridgewater) tweeting that the story misconstrued their strategy. While this article was short on details, it brings up a great point.

This year, Nobel award-winning economist Robert Shiller recently pointed out the danger of Narrative Economics. This occurs when a story creates the action instead of the opposite way around. The danger is that these stories create unneeded panic, which could've happened with this Wall Street Journal piece. The misunderstood part of the story is that Bridgewater's strategy is built upon protecting on the downside which is what the reporter misrepresented. To go deeper, this article could create unnecessary panic to the casual reader as it resembles clickbait.

Hopefully, this blog post will entice you to do your research because the dangers of panicking from misinformation can lead to bad decisions on all fronts.

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