Shiller is an economics professor at Yale University. He is co-founder of
MacroMarkets, which created Housing Futures and Options for U.S.
residential real estate. He has published several books, including the best seller Irrational Exuberance and Macro Markets.

Were you a bull or bear?
We had seen big drops in the three days before the Monday crash—it was widely said that the market was overpriced. I had been surveying investors about the market. To me, it was a social phenomenon. I’ve always believed that markets are irrational. Stock markets are generally never right.

What do you remember most?
Everyone was selling and thought this was it. For the three days preceding the Monday drop, the market fell. Then we had the weekend to stew about it, and on Monday morning the Wall Street Journal published a chart showing market prices overlaid with the pattern of 1929—showing all things that were set up for it. It was considered a repeat of 1929—that was the mindset that people had and things collapsed.

I wanted to conduct a survey that would be the definitive study of the crash. After the 1929 crash, no one had asked people what they were thinking. You have to do it right away, otherwise people forget or are influenced by what they hear. I didn’t get any sleep for the next two nights.

What’s different now?
We don’t have the same sense of overpricing of the market that we did then. On, our Stockmarket Confidence Indexes show that we don’t think the market is overpriced now. Back then, portfolio insurance was new, and there may have been an overreliance on it. But in my surveys it didn’t come up much. We found that investors thought the markets were crazily high and psychology was changing.

Lessons learned:
Mathematically, it made me think about feedback loops and how they can generate what seems to be pure randomness. It was making me think that a lot of what goes on in the market is how people react.