Irrational Exuberance 3rd edition

Irrational Exuberance 3rd edition

Language: English

Pages: 392

ISBN: 0691166269

Format: PDF / Kindle (mobi) / ePub


In this revised, updated, and expanded edition of his New York Times bestseller, Nobel Prize-winning economist Robert Shiller, who warned of both the tech and housing bubbles, cautions that signs of irrational exuberance among investors have only increased since the 2008-9 financial crisis. With high stock and bond prices and the rising cost of housing, the post-subprime boom may well turn out to be another illustration of Shiller's influential argument that psychologically driven volatility is an inherent characteristic of all asset markets. In other words, Irrational Exuberance is as relevant as ever. Previous editions covered the stock and housing markets--and famously predicted their crashes. This edition expands its coverage to include the bond market, so that the book now addresses all of the major investment markets. It also includes updated data throughout, as well as Shiller's 2013 Nobel Prize lecture, which places the book in broader context. In addition to diagnosing the causes of asset bubbles, Irrational Exuberance recommends urgent policy changes to lessen their likelihood and severity--and suggests ways that individuals can decrease their risk before the next bubble bursts. No one whose future depends on a retirement account, a house, or other investments can afford not to read this book.

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Economics Working Paper No. 03–9, October 2003. 17. See Joel E. Cohen, “A Global Garden for the Twenty-First Century,” The Key Reporter, Spring 1998, p. 1. 18. See World Bank, Averting the Old Age Crisis (New York: Oxford University Press, 1994). 19. Gurdip S. Bakshi and Zhiwu Chen (“Baby Boom, Population Aging and Capital Markets,” Journal of Business, 67 [1994]: 165–202) found a substantial correlation between the average age of the U.S. population over age 20 and the real S&P index,

evident in the United States. Nevertheless, even though not all of the precipitating factors are operative in Europe, the strong cultural connections between the United States and Europe, and the effects of U.S. investors’ demand for European stocks, should cause a substantial contagion effect. Chapter Four Amplification Mechanisms: Naturally Occurring Ponzi Processes 1. Although not explicitly stated there, allusions to the feedback theory can be found in Charles MacKay's Memoirs of

same nominal returns we have seen in the stock market since 1960 is expecting a lot more in real terms. Plots of historical stock price indexes in the media are almost invariably shown in nominal terms, not the real inflation-corrected terms shown in the figures in this book. Consumer prices have increased sixfold since 1960 and seventeenfold since 1913. This inflation imparts a strong upward trend to long-run historical plots of stock price indexes, if they are not corrected for inflation. Thus

we have for investing now, a point to which I will return later in this chapter. When arguments become so detached from an analysis of historical data, the only impact on people's thinking made by actual data is a vague sense, from casual inspection of very recent data, that the market has always reversed declines. Many media accounts routinely tell stories about the satisfaction felt by those who have invested in stocks in years past, with the clear suggestion to the reader that “you can do it

naturally occurring Ponzi scheme—if we may call speculative bubbles that—will be more irregular and less dramatic, since there is no direct manipulation, but the path may sometimes resemble that of a Ponzi scheme when it is supported by naturally occurring stories. The extension from Ponzi schemes to naturally occurring speculative bubbles appears so natural that one must conclude, if there is to be debate about speculative bubbles, that the burden of proof is on skeptics to provide evidence as

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