Economics Has Lost Its Narrative Thread Says a Leading Expert

Economics has become incredibly sophisticated over the past century, but according to one of Canada’s most influential economists, it may have lost something essential along the way: its connection to how people actually think. Randall Morck, a globally recognized expert in corporate finance and financial history, argues that modern economics relies too heavily on mathematics and not nearly enough on human narratives.

Morck, who serves as the Stephen Jarislowsky Distinguished Chair in Finance at the Alberta School of Business, is no outsider throwing stones. He is Canada’s most-cited economist, with his work referenced more than 58,000 times, and he himself was trained in mathematics. That background gives weight to his critique. His central concern is not that mathematics is useless in economics, but that it has been allowed to dominate the field at the expense of realism.

In his recent study, Economics: More than a Science, published in the journal Critical Review, Morck makes the case that economists too often treat people as if they were dynamic, stochastic optimization equations—abstract machines calculating probabilities and outcomes—rather than emotional, memory-driven human beings shaped by stories, experiences, and beliefs.

At the heart of his argument is a simple observation: people do not think in probabilities. They think in stories. When faced with decisions, humans recall past experiences, learned lessons, cultural myths, and emotionally charged memories. These narratives are then recombined to guide action, often with little concern for precise statistical likelihoods.

Morck illustrates the problem with a well-known anecdote originally shared by Nobel Prize–winning economist and artificial intelligence pioneer Herbert Simon. Imagine walking into a restaurant with a large menu. Classical economic theory suggests that a rational person would consider thousands of possible food combinations, assign probabilities to nutrition, taste, price, and satisfaction, and then compute the optimal utility-maximizing meal. In real life, of course, nobody does this—not even economists. People rely on past meals, recommendations, cravings, or simple habits. Yet economic models frequently assume that this kind of hyper-rational calculation is how decisions are made.

This disconnect, Morck argues, has serious consequences for how economists understand innovation, financial markets, and economic crises. Revolutionary ideas and technologies rarely emerge from optimizing within known probabilities. Instead, they come from combining old ideas into new narratives that were never previously imagined. By definition, such breakthroughs lie outside the space of established models.

Morck extends this narrative-based thinking to explain long-standing patterns in financial history, particularly the repeated cycles of mania, panic, and crash seen in stock markets over the past four centuries. Again and again, a dominant story takes hold: invest in the big new thing, and riches will surely follow. This narrative has appeared in many forms, from railway stocks in the 1840s to electricity and radio in the 1920s, dot-com companies in the 1990s, and artificial intelligence stocks today.

These booms are not random accidents. They are driven by contagious narratives that spread rapidly through societies and markets. Investors buy not just because of balance sheets or discounted cash flows, but because a compelling story convinces them that they are witnessing the future unfold.

Alongside each speculative boom, Morck notes, there is almost always a regulatory cycle. After a crash, governments introduce tough new rules designed to ensure that such excesses never happen again. Over time, memories fade, a new transformative technology emerges, and the cycle repeats. According to Morck, this irregular boom-and-bust pattern is not a flaw in free-market economies—it is a feature.

Paradoxically, these bubbles often fund innovations that more cautious investors or technocratic planners would never support. While many bubble investors lose money when the crash comes, society often benefits from the infrastructure and technologies left behind. The collapse of the dot-com bubble, for example, still gave rise to the modern internet, smartphones, and digital platforms that now underpin daily life.

The idea that narratives matter in economics is not entirely new. Elements of narrative thinking can be traced back to John Maynard Keynes, who emphasized uncertainty, psychology, and animal spirits in economic decision-making. More recently, Nobel laureate Robert Shiller brought renewed attention to the concept with his 2020 book Narrative Economics: How Stories Go Viral and Drive Major Economic Events.

What changed, according to Morck, was the discipline’s post–Second World War transformation. During this period, physicists were celebrated as scientific heroes for building the atomic bomb and launching humanity into space. Economics followed their lead, aspiring to similar precision and status. Sentences and paragraphs gave way to equations. While this shift added rigor and clarity, it also stripped away much of the field’s human dimension.

A popular saying in Morck’s field captures this tension: mathematics gave economics rigor, but it also gave it mortis. The perfectly rational decision-maker, endlessly optimizing probabilities, is not particularly good at predicting or generating transformative innovation. Optimizing within known outcomes may work for engineering problems, but it struggles with a future shaped by surprise and creativity.

Morck draws a sharp distinction between the challenges faced by natural sciences and those faced by economics. In physics or chemistry, the deepest problems involve quantifiable probabilities and outcomes. In economics, the deepest problems involve the expansion of human prosperity—a process driven by imagination, belief, and social coordination. Revolutionary technologies emerge from outside existing models, making economics, in his words, “harder than science.”

Narratives, however, are not always beneficial. Morck is careful to point out that stories can mislead just as easily as they can inspire. Inaccurate or unreliable narratives can produce disastrous outcomes, especially when they become self-fulfilling. He offers the example of cities struck by catastrophic floods, such as New Orleans or Calgary. One narrative might declare the city finished and unworthy of rebuilding. Another might insist that it will recover and thrive. If enough people believe one story over the other, their collective actions can make it come true.

From this perspective, some of the most important questions in economics shift away from equations and toward understanding stories. Which narratives do people use to explain economic events? What influences which stories come to mind? And which narratives genuinely contribute to long-term prosperity and productivity growth?

In recent decades, narrative economics has slowly regained legitimacy within the discipline, often in combination with behavioral psychology. Morck sees this as a promising development, suggesting that economics may be rediscovering its lost connection to human behavior without abandoning analytical rigor entirely.

His argument is not a call to eliminate mathematics from economics, but to restore balance. Equations can clarify ideas, but stories explain why people act. Ignoring either side produces an incomplete picture of how economies evolve, innovate, and sometimes fail.

Research paper:
https://doi.org/10.1080/08913811.2025.2500202