Irrational Exuberance: Second Edition

Rating: 4.0/5 Stars
Rank: 2837

Shiller is one of several well-known economists and pundits who've begun a running dialogue in the last few years around the drawbacks of unchecked free markets.

Few writers, though, dissect the phenomenon of bubble behavior as clearly and thoroughly as Shiller does.

As with the first edition of his book, Shiller begins this one with reams of quantitative data around the late 1990s stock-market runup.

This new edition adds data on real-estate price trends in the early 2000s, and points out the striking parallels between the earlier stock-market boom and bust, and current trends with housing prices in the United States.

Shiller actually believes the two phenomena are related; as investors lost confidence in the stock market and moved their money into real estate, one asset class fell while the other rose.

According to Shiller's analysis, the pattern is destined to repeat itself.

Aside from the initial data, the real strength of Irrational Exuberance is the straightforward, almost clinical way in which it explains why things happen as they do. The book walks readers through structural reasons for market bubbles, then ventures into "softer" analyses which professional economists less confident than Shiller would be scared to touch.

It examines cultural factors behind market bubbles, such as hype-mongering news media, and psychological factors, such as herd behavior.

Another improvement in this latest edition of Shiller's book is his inclusion of more personal commentary, and he mentions the influence that his wife, herself a clinical psychologist, has had on his intellectual development and his view of psychological impacts on economic behavior.

Other personal insights from Shiller center on experiences he had while touring and lecturing around the first book, and some of the most interesting passages are those in which he describes common questions or feedback from his audience, and what he thought in reaction--but didn't voice while on his tour.

In the end, Shiller closes his book with an intriguing set of policy proposals.

He argues for a revamping of the U.S. social security system, a new system of house-price insurance for homeowners, and risk reduction through portfolio diversification.

Fans of the brainy academic will note with approval that Shiller practices what he preaches: he has begun trying to implement some of his ideas in the real world through two private consulting firms he has founded, Macro Securities Research and Macro Financial.

The hope is if Shiller's as correct with this second book as he was with his first, readers will all learn something from these new companies. --Peter Han

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Editorials

	Paul Krugman, The New York Times
	"Shiller ...has added an ominous analysis of the housing market to the new edition"
	Louis Menand, The New Yorker
	May be one of the most important books on higher education.... It is certainly one of the most interesting. --This text refers to the Hardcover edition.
	Review
	New York Times Bestseller"Should be compulsory reading for anybody interested in Wall Street or financially exposed to it."?The Economist"The national bestseller that revolutionized the way we think about the stock... read full editorial

Customer Reviews

	indepth analysis on market behavior
	(Rolla, MO United States) April 2, 2005 - 5.0/5 stars
	In a welcome second edition of the book, Shiller sets up his main theses using the real estate "bubble" (or if you prefer, "boom") example. The first part of the book focuses on a historical analysis of... read full review
	2nd edition coming
	(Dawson's Landing, MO) September 12, 2004 - 4.0/5 stars
	If you believe Shiller was prescient in early 2000, take note that a second edition is in the works, and he adds his concerns about current real estate valuations this tiem around. From CNN article on 8/12/04:... read full review
	Good insight to market as whole
	(Berkeley, CA USA) August 5, 2000 - 3.0/5 stars
	The book does provide a lot of evidence to show that the stock market is overvalued compared to historical levels. The other reviews do a good job of highlighting what is in the book. I think the point about how Americans... read full review

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