Narrative Economics in the Digital Age: The Power of Stories in Shaping Economic Behavior and Policy

Abstract

Narratives increasingly shape collective expectations, economic behavior, and policy effectiveness. In this study, the active role of economic narratives as drivers of markets is examined under a multi-level conceptualization of narratives in formation, transmission, persistence, and interaction with fundamentals. Through three recent episodes—cryptocurrencies (2016–2022), post-COVID inflation narratives (2020–2023), and the 2021 meme stocks episode—the paper illustrates how narratives shape expectations, coordinate collective action, and influence market outcomes. Analyses use textual, media, and social network data to highlight how platforms digitally facilitate diffusion and amplify emotionally resonant stories. Findings show that narratives can lead, amplify, or even temporarily overcome economic fundamentals to generate feedback loops and market turbulence. The study illustrates the measurable impact of storytelling on financial and macroeconomic action and highlights the importance of injecting narrative analysis into economic research. These conclusions offer some recommendations to policymakers and regulators regarding how to predict, inform, and manage narrative-based effects in today’s digitalized economies. By applying crossing theory, empirical exemplars, and policy understanding, the paper provides a stepping stone for applying narrative analysis in economic decision-making, with a focus on the structural importance of stories in shaping contemporary economic systems.