Irrational Exuberance：Second Edition

Inthistimelyandprescientupdateofhiscelebrated2000bestsellerIrrationalExuberance,RobertJ.Shillerreturnstothetopicthatgainedhiminternationalfame:marketvolatility.Shillerbreaksnewgroundinthissecondeditionbylayingoutinevenclearerandstarkertermsthemarketexcessesthatcontinuetodestabilizetheeconomyanddisruptourlives.Havingpredictedthestockmarketcollapsethatbeganjustonemonthafterthefirsteditionwaspublished,henowexpandsthebooktocoverothermarketsthathavebecomevolatile,particularlytherecentlyred-hothousingmarket.Heincludesafullchapterondomesticandinternationalhousingpricesinhistoricalperspective.Shilleramassesimpressiveevidencetosupporthisargumentthattherecenthousingmarketboombearsmanysimilaritiestothestockmarketbubbleofthelate1990s,andmayeventuallybefollowedbydeclininghomepricesforyearstocome.Afterstocksplummetedwhenthebubbleburstin2000,investorsmovedtheirmoneyintohousing.ThisprecipitatedtheinflatedrealestatepricesnotonlyinAmerica,butaroundtheworld,Shillermaintains.Hence,irrationalexuberancedidnotdisappear--itmerelyreappearedinothersettings.Buildingontheoriginaledition,Shillerdrawsoutthepsychologicaloriginsofvolatilityinfinancialmarkets,thistimefoldingrealestateintohisanalysis.Hebroadenstheevidencethatinvestingincapitalmarketsofallkindsinthemodernfree-marketeconomyisinherentlyunstable-subjecttotheprofoundlyhumaninfluencescapturedinAlanGreenspan'snow-famousphrase,"irrationalexuberance."Theultimatesolutiontothistroublingcondition,hemaintains,wouldinvolvebetter-designedpublicinstitutionssuchasarevampedsocialsecuritysystem,newformsofinsurancetoprotectpeople'sincomesandhomes,andabroaderarrayofinvestmentoptions.Aswastrueofitspredecessor,thesecondeditionofIrrationalExuberanceisdestinedtobewidelyread,discussed,anddebated.