A Conversation With Robert Shiller

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A Conversation With Robert Shiller by Council on Foreign Relations


Robert Shiller

Sterling Professor of Economics, Yale University; Recipient, 2013 Nobel Memorial Prize in Economic


Peter R. Orszag

Vice Chairman of Corporate and Investment Banking and Chairman of the Financial Strategy and Solutions Group, Citigroup, Inc.; Former Director, Office of Management and Budget, White House

Introductory Speaker:

Robert E. Rubin

Co-Chairman, Council on Foreign Relations; Former Secretary of the U.S. Treasury


Robert Shiller discusses the importance of economic irrationality, crowd behavior, and other elements of behavioral finance in understanding the global economy and making effective economic policy.

This symposium, presented by the Maurice R. Greenberg Center for Geoeconomic Studies, is made possible through the generous support of Robert B. Menschel.


A Conversation With Robert Shiller – Transcript

RUBIN: Good afternoon. I’m Bob Rubin, co-chairman of the Council on Foreign Relations, and I’m delighted to welcome you to the first annual meeting of the Robert B. Menschel Symposium on Economics.

Bob and I were partners for many years at Goldman Sachs. Bob, in addition to running a very successful and very important part of the firm, was a very successful investor in those days, and is to this day. And my recollection of Bob as an investor is that the key, or at least a key, to his success was that he would look at an irrational world and rationalize. And that leads straight to Bob’s endowment to the Council for an annual symposium dealing with behavioral economics.

As all of you know, economic modeling is based on the assumption of a rational person. And as all of you also know, that is pretty much unrelated to reality. The market, in the shorter run, is—at least in my view but I think it’s a broadly held view—is a psychological phenomenon, and even if over time—over a longer period of time it averages out to reflect fundamentals. And psychology and confidence are certainly key factors with respect to how economies function.

The economics profession—again, as all of you know—is now very much focused on behavioral economics and on trying to capture the psychology of markets, the psychology of economies. It seems to me that there is some question as to how effectively that will ever be done, but clearly this work is enormously important. And we are very, very grateful to Bob for endowing this symposium.

An example in the policy arena—one that I was very involved with when I was at Treasury—is the question of what effect fiscal conditions have on an economy. And one of the issues there was what is the—what are the psychological effects of intermediate and longer-term unsound fiscal conditions as we, for example, today face?

On the forecasting front, Fischer Black—who, as you know, was the co-author of the Black and Scholes model for pricing options—spent many years at MIT and then he came and he joined us at Goldman Sachs. And Fischer famously said, in later years—when he was asked why he had moved away from the Fischer market theory with respect to markets, said that markets looked very different from the banks of the Hudson than they had from the banks of the Charles.

And I thought that captured very well—(laughter)—the contrast of the realities of markets and what people think about in places like Cambridge and perhaps even some people in New Haven who knows Bob. (Laughter.) Clearly, trying to understand the psychology of markets is extremely important for investors, business people, and policy makers. And again, we are very, very grateful to Bob for endowing this symposium to enable all of us to get a better sense of those sets of questions.

See full transcript here.

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