Animal Spirits
John Maynard Keynes's term for the human confidence and intuition that drives investment and economic activity beyond purely rational models.
What is Animal Spirits?
Animal spirits is a concept introduced by John Maynard Keynes in his 1936 work 'The General Theory of Employment, Interest and Money' to describe the instinctive, non-rational impulses — optimism, confidence, and spontaneous decision-making — that motivate business investment and economic activity. Keynes argued that business investment is not purely a function of rational calculation of future returns, but is deeply influenced by the 'spontaneous urge to action rather than inaction.' When animal spirits are high, businesses invest, hire, and expand regardless of uncertainty; when they collapse (in recessions and crises), investment freezes even if interest rates are zero. The concept was revived by economists George Akerlof and Robert Shiller in their 2009 book 'Animal Spirits,' linking the term to five psychological factors: confidence, fairness, corruption, money illusion, and stories.
Example
During the dot-com boom of 1997–2000, venture capitalists invested in internet companies with no revenue, no profits, and no viable business model — driven by animal spirits: the collective belief that the internet would fundamentally transform commerce, combined with the FOMO of watching competitors' portfolio companies IPO at astronomical valuations. Keynes would have recognized this as a triumph of animal spirits over rational calculation — and the subsequent bust as their reversal.
Source: Investopedia — Animal Spirits