Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism

 The most prominent book related to "animal spirits" in investing is "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism" by George Akerlof and Robert Shiller. Published in 2010, this book explores how emotions and psychological factors like fear, confidence, and a concern for fairness influence economic decisions and financial markets, challenging the idea of purely rational economic actors and offering a vision for restoring prosperity. 

Key Aspects of the Book

• Origin of the Term: 

  The book builds on the concept of "animal spirits" first introduced by economist John Maynard Keynes to describe the emotional and psychological factors that influence economic behavior. 
• Psychological Drivers: 

  Akerlof and Shiller detail the pervasive effects of animal spirits, such as confidence, fear, corruption, and the stories people tell about their economic fortunes. 
• Critique of Modern Economics: 

  The book critiques the prevailing economic wisdom and the rational expectations revolution, arguing that these approaches failed to account for the powerful role of human psychology in driving financial events. 
• Impact on Investing: 

  By understanding these psychological forces, investors can gain insights into irrational market behavior and the importance of managing emotions to make sound financial decisions. 
• Context of the Global Financial Crisis: 

  The book emerged from the global financial crisis, highlighting how these psychological forces can imperil economic stability and wealth. 

In essence, the book argues that investing and the broader economy are driven not only by rational factors but also by powerful, often irrational, human emotions, and that a deeper understanding of these "animal spirits" is crucial for navigating and improving economic outcomes.