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Irrational Exuberance by Robert J. Shiller
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Irrational Exuberance (edition 2006)

by Robert J. Shiller (Author)

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9331722,913 (3.83)3
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.… (more)
Member:marzagao
Title:Irrational Exuberance
Authors:Robert J. Shiller (Author)
Info:Crown Business (2006), Edition: 2, 336 pages
Collections:Your library
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Irrational Exuberance by Robert J. Shiller

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Prior to reading this book, I have listened to various lectures and speeches by Professor Shiller that I have found on Youtube and online. What I appreciate is that I can follow and largely understand his explanations and analysis (for the most part) as someone who did not do well with my economic courses in college. Fortunately this book was also user-friendly. It’s not written exclusively for other economists and academics.

I am trying to gain a better understanding of economics in general but also trying to understand investing and what factors affect the stock market, housing market and finance. Shiller provides an excellent overview of the American economy and history including the 1929 Stock Market crash and the 2007-2008 downturn (I read the third edition of this book that included the 2007-2008 downturn.)

There are lots of chart, data and information throughout the book. Shiller also has an informative section of how the press and media affect the Stock Market and economy. This is not an easy read but the effort was worthwhile, at least for this reader. ( )
  writemoves | Oct 26, 2021 |
I read the edition of the book that was published right before the dotcom crash and it was interesting from that perspective. The book talks about how market prices can go up without no meaningful cause and as we know, it came crashing down just a few months later. I suspect that is part of the reason he and this book became well known.

In the book he is very careful not to predict a crash, but he doesn't keep secret that he thinks the prices of 1999, early 2000 were without foundation. He walks the reader through possible causes, but here he does speculate a lot. He implies and suggests without making any clear statements, nor presenting any strong evidence and that is what makes the book a bit flat and uninteresting.

A better part is where he criticizes the statement that stocks is always best. We know that stocks have almost always been best under certain circumstances, but we both cannot always control those circumstances, nor can we know if the market will behave in the past as it did in the past. We know for instance that, corrected for inflation, NASDAQ has still not recovered from the crash and it's been 17 years. At least not without including dividends (I don't have dividend numbers so I cannot say).

I would not recommend this to anyone, even though it's short. ( )
  bratell | Dec 25, 2020 |
An excellent inbetween book. Not too academic and dry but also not too simplistic. The most complete treatment of bubbles I've read.

Shiller is a great empiricist, and tests out efficient markets hypothesis through various econometric tests and survey data. Shiller actually asks investors through extensive survey data to see what their motivations and logic is, a pretty simple but radical move from assuming them to be rationally calculating agents. Through this data Shiller shows how irrational, and self contradicting investment behavior can be. Additionally, Shiller does alot of searches through news and media in order to see if the news portion of efficient markets theory holds i.e. is there actually news that explains price movements? To my knowledge both of these attempts at gathering data are novel (and in hindsight) obvious.

An interesting take on speculative bubbles. Shiller shows (at least to my satisfaction) that 1) Bubbles in asset prices do exist and 2) We should look beyond pure financial theory to explain the behavior of bubbles. Shiller explores possible explanations for increases in asset price, and shows that at least, there is no real rational basis for certain increases in prices (looking at population growth, construction price and interest rates do not explain the housing prices for example), and that certain implications of efficient markets are violated. In particular, he could not find any news to explain large price movements, and that stock prices are too volatile compared to dividends growth (an apparent violation of the Gordon discount model).

Shiller then goes on to suggest some possible explanations for the behavior of bubbles. He argues many factors, a combination of social, psychological and cultural factors. He goes in length about feedback loops, herd behavior, word of mouth contagion, and the role of media in drawing attention to issues. Shiller discusses how certain vivid stories (in particular "new era" theories) can capture the imagination of investors and unmoor asset prices. Shiller also describes how irrational enthusiasm, mixed in with a convincing story can overwhelm quantitative fact and forecasts driving self-creating bubbles. Sometimes investors, encouraged by the raise in prices, jealous of others "success" and with a gambler's high can pile on into markets. Shiller also surveys behavioral economics, in particular anchoring, and overconfidence in their roles in bubbles. This section actually seems a bit weak to me, Shiller seems to be throwing everything at the wall to see what sticks, and some of these explanations (while I believe happen to be true) are difficult if not impossible to falsify.

Ultimately, Shiller suggests improving markets by broadening participation, encouraging opinion leaders to educate investors and reducing short constraints (for example creating markets to allow investors to short asset prices such as housing easily). An enjoyable (if somewhat technical at points) read overall. ( )
  vhl219 | Jun 1, 2019 |
A prominent strain of investing advice asserts that market timing is hopeless, and encourages investing heavily in index funds without attempting to judge how reasonable their current price level is. I’m not sure to what extent Shiller’s own concrete investment advice - this book offers little of it - would differ, but his discussions of stock market history, real estate market history, and the efficient market hypothesis do provide a very intriguing note of caution to that sort of thinking. ( )
  brokensandals | Feb 7, 2019 |
The book was well written and straightforward in its presentation and premises. Although one can't help but agree with the author's conclusion of a stock market bubble and its long-term impact, the author presents his psychological/sociological interpretation without basis far too often. I would have liked to see more substantiation of investor behavior and their motives; too often the author made assumptions about investor motivation. ( )
  James.Igoe | Jul 26, 2017 |
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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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