U.S. Markets closed

Can We Talk Ourselves Into a Recession or Bubbles?

Barry Ritholtz

(Bloomberg Opinion) -- Can we talk ourselves into a stock-market bubble? A recession? Why would the story of an economic theory drawn on a cocktail napkin have so much more resonance than all the reams of research that have debunked it? These are some of the questions pondered by Nobel economist Robert Shiller, professor of economics at Yale University, and this week's guest on Masters in Business.

Shiller in his latest book, “Narrative Economics: How Stories Go Viral and Drive Major Economic Events,” delves into why some stories go viral and others do not and how the stories we tell ourselves influence our beliefs, markets and economic events. Shiller explains, for instance, how Google Trends can be used to predict economic changes, helping us spot when the public’s rising economic concerns are identifiable before a recession officially begins.He is perhaps best known for the numerous market and economic measures, including the CAPE (cyclically adjusted price-to-earnings) ratio and the Case-Shiller Housing Index. His 1981 paper, “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” was an early exploration of behavioral finance, challenging the concept that markets are perfectly efficient and individuals are driven by rationality. He has been the co-organizer of National Bureau of Economic Research workshops on behavioral finance with fellow Nobelist Richard Thaler since 1991. Shiller won the Nobel 2013 for his empirical analysis of asset prices. Readers can take Shiller’s free course on Financial Markets on Coursera.

His favorite books are here; a transcript of our talk is here.You can stream/download the full conversation, including the podcast extras on Apple iTunes, Overcast, Spotify, Google Podcasts, Bloomberg and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Binyamin Appelbaum, lead business and economics writer for the New York Times’ Editorial Board, and author of "The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society."

To contact the author of this story: Barry Ritholtz at britholtz3@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

For more articles like this, please visit us at bloomberg.com/opinion

©2019 Bloomberg L.P.