The Trouble with Robert Shiller

Economist Robert Shiller presented a paper today on human behavior in real estate bubbles at the KC Fed conference in Jackson Hole. Economist James Hamilton was there, and he filed this skeptical report:

One thing I have never understood is the source of Shiller’s confidence that he is able to rise above these cognitive pitfalls in a way that market participants can not. Nor does his quantitative evidence help me to understand his position any more clearly. He notes for example a 1988 survey which found that the median new homebuyer in Los Angeles expected 11% price appreciation over the next 12 months, whereas the median buyer in Milwaukee expected only 5%. Since the OFHEO house price index shows a 13.9% appreciation for Los Angeles and a 6.2% appreciation for Milwaukee during 1989, it’s hard for me to see how these survey results are supposed to convince us of people’s lack of rationality. I also am unsure how Shiller’s concept of real estate price bubbles in “superstar” cities is to be reconciled with the fact that the problems with mortgage defaults initially proved to be most serious in rustbelt areas where there had been very little real estate price inflation.


  1. Brent Buckner says:

    Maybe having a certain amount of evidence that he has indeed correctly identified “irrational exuberance” before increases Shiller’s confidence about his likelihood of being right again.
    Maybe if James Hamilton were contrarian and correct more often, or would just lower his standards for evidence, he himself would be more self-confident….

  2. Looks like some people will just never forgive Shiller for being so damned right about the late 90’s bubble.

  3. Shiller goes about things in an intensely rational way. he was right about the lates 90s bubble and he is right about this housing bubble, which Jim Rogers has said is one of the biggest bubbles we have ever had. People are ready for the housing “crunch” to be over. The reality may be that its just getting underway.

  4. How “right” was Shiller about the 1990s bubble?
    “(…)In 1996 Yale economist Robert Shiller looked around, considered the historical record on the performance of the stock market, and concluded that the American stock market was overvalued(…)In the decade up to January 2006, he predicted, the real value of the S&P 500 would fall, and even including dividends his estimate of the likely real inflation-adjusted returns to be earned by investors holding the S&P 500 was zero(…)Robert Shiller’s arguments were wrong–at least, wrong ex post(…)the past decade has seen the stock market offer returns a little bit higher than the historical averages–much, much greater than zero(…)”

  5. stephen bang says:

    Even a broken clock is right twice a day!
    An eternal bear will always be right EVENTUALLY!!