- A major boom in real stock prices in the U.S. after ‘Black Tuesday’ brought them halfway back to 1929 levels by 1930. This was followed by a second crash, another boom from 1932 to 1937, and a third crash. Speculative bubbles do not end like a short story, novel, or play. There is no final denouement that brings all the strands of a narrative into an impressive final conclusion. In the real world, we never know when the story is over
- Economics is (now) about emotion and psychology
- The good news is that, at least in economics, I’ve seen movement away from its overemphasis on mathematical models of purely rational behavior to a more eclectic and commonsense approach: research that is, among other things, more respectful of insights from psychology
- My clinical psychologist wife of 40 years has always had a close intellectual influence on me. When I was beginning to talk openly in the economics profession about irrationality in decision-making, I received a lot of criticism. Ginny would support my views and remind me that a whole other profession – psychology – studies people’s irrational sides
- Money management has been a profession involving a lot of fakery – people saying they can beat the market, and they really can’t
- Stock prices are likely to be among the prices that are relatively vulnerable to purely social movements because there is no accepted theory by which to understand the worth of stocks….investors have no model or at best a very incomplete model of behavior of prices, dividend, or earnings, of speculative assets
- To understand the economy then is to comprehend how it is driven by the animal spirits. Just as Adam Smith’s invisible hand is the keynote of classical economics, Keynes’ animal spirits are the keynote to a different view of the economy — a view that explains the underlying instabilities of capitalism
- The ability to focus attention on important things is a defining characteristic of intelligence
- The blind leading the blind
- One thing I’ve noticed about history – you can search on newspapers going back hundreds of years, search for ‘economic forecast,’ you don’t find it. It would be very rare to find it
- My father, Benjamin Shiller, told me not to believe in authorities or celebrities – that society tends to imagine them as superhuman. It’s good advice. People are snowed by celebrities all the time. In academia people have this idea of achieving stardom – publishing in the best journals, being at the best university, writing on the hot topic everyone else is writing about. But that’s what my father told me not to do. He taught me that you have to pursue things that sound right to you
- Consider our difficulties avoiding junk food and overspending. Such addictions were carefully planned-for by professional marketing teams
- Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories
- In a bubble, eventually people start saying, ‘Wait a minute… these prices are way too high! What is anyone buying anymore? What could they possibly be thinking?’ And then there’s a correction and a bursting
- We don’t know the probabilities of future events. Still, you have to take action, and so you do it on gut feeling. That’s the world we live in
- That’s the world we live in: when it comes to economics, people have emotions; it’s not like chemistry or physics
- Fear causes individuals to restrain their spending and firms to withhold investments; as a result, the economy weakens, confirming their fear and leading them to restrain spending further. The downturn deepens, and a vicious circle of despair takes hold
- Irrational exuberance is the psychological basis of a speculative bubble. I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases and bringing in a larger and larger class of investors, who, despite doubts about the real value of an investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement
- In the longer run and for wide-reaching issues, more creative solutions tend to come from imaginative interdisciplinary collaboration
- Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict
- In a broad sense, this book, from its first edition in 2000, has been about trying to understand the change in thinking of the people whose actions ultimately drive the markets. It is about the psychology of speculation, about the feedback mechanism that intensifies this psychology, about herd behavior that can spread through millions or even billions of people, and about the implications of such behavior for the economy and for our lives. Although the book originally focused directly on current economic events, it was, and is, about how errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments but are themselves following still others—the blind leading the blind
- There’s so much disagreement about investing, and it’s because nobody really knows
- It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble
- Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society
- Hesitation is often like procrastination. One may have vague doubts and feel a need to mull things over; meanwhile, other issues intrude on thought, and no decision is taken. Ask people why they procrastinate, and you probably won’t get a crisp answer
- Since the global financial crisis and recession of 2007-2009, criticism of the economics profession has intensified. The failure of all but a few professional economists to forecast the episode – the aftereffects of which still linger – has led many to question whether the economics profession contributes anything significant to society
- We judge economics by what it can produce. As such, economics is rather more like engineering than physics: more practical than spiritual
- This is an anxiety driven world – the whole world is driven by anxiety. It is anxiety about the aftermath of the global financial crisis; it’s anxiety about inequality and about computers replacing jobs
- I think we do need to try to not just rely on the central bank to, in its wisdom, adjust interest rates, but allow for people to avoid being exposed to inflation risk
Kontak Kami
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