Saturday, April 05, 2014
Robert Shiller's Nobel Knowledge
Q: One theme that runs through your work is that people tend to make mistakes over and over again. That's quite different than what I learned in college economics—that people are rational. How did you start thinking about people's mistakes? A: When you went to college, the economics profession had reached an unnatural state. Mathematical models of rational behavior became the rage. It was just an abnormal time. I was reading more widely and wanting to come back to reality.
Q: Was there something you saw in reality that led you to this? A: Well, bubbles. The story about bubbles was that the markets appear random, but that's only because markets respond to new information and new information is always unpredictable. It seemed to be almost like a mythology to me. The idea that people are so optimizing, so calculating and so ready to update their information, that's true of maybe a tiny fraction of 1 percent of people. It's not going to explain the whole market.