Robert Shiller is a Nobel laureate, economist, entrepreneur, author, and professor. His contributions to economics have made him one of the most significant contributors to modern economic practice and theory. He co-created the housing price index currently used to track and analyze the trends in real estate prices throughout the country. In 2013, he received the Nobel Prize in economics, along with Eugene Fama and Lars Peter Hansen, for their evidence-based research and analysis of asset prices.
A second generation Lithuanian-American, Robert Shiller is a native of Detroit. He is described as having been restless and energetic as a kid who could easily be distracted yet was a devout reader. He was fascinated by science in general as a younger boy, not getting into economics until high school when he read an economics textbook that his brother John bad brought home while on winter break from college.
After high school, Shiller spent time at Kalamazoo College before going off to the University of Michigan, where he also got into writing and took a job at the Michigan Daily, the student newspaper. There was something Shiller enjoyed about the fact-finding and research, much as a scientist does, that went into good writing and made for enjoyable reading.
After graduating from Michigan in 1967 with a B.A. in economics, Shiller attended MIT for his master’s and then Ph.D. in economics, where one of his professors was Paul Samuelson, the author of the economics textbook that he had read in high school.
After MIT, Robert Shiller lectured at a variety of institutions, including the University of Minnesota, the University of Pennsylvania, the London School of Economics, and MIT. In 1979, he accepted a research post at the National Bureau of Economic Research, on whose behalf he still organizes behavioral finance workshops. While at NBER, Shiller was responsible for making predictions on when U.S. recessions and periods of growth officially began and ended. In 1982, he became an economics professor at Yale, a position he continues to hold today.
In 1981, Shiller introduced the concept of behavioral finance, which was initially met with skepticism. At the time, the prevailing economic thought stated that it was virtually impossible to predict short-term stock price movements. However, Shiller determined that stock prices could be predicted, especially over the long-term. He also found that stock prices fluctuated much more than corporate dividends, which he declared made the market inefficient, very much the opposite of the belief at the time that the market worked efficiently.
Several years later, part of his research entailed talking to investors and traders after the 1987 stock market crash and asking about their motivation behind the trades they made. The information he gathered supported what he had already surmised – that investing decisions are often made based on emotion and not on rational analysis or empirically based calculations.
From his research, he developed a concept later found to be accurate. A “bubble”, as it came to be called, happens when a financial market experiences rapid price fluctuations and constantly changing asset evaluations. This theory gained more credence with the growth and subsequent burst of tech bubble around the turn of the century. It was further strengthened with the bursting of the real estate and housing market bubble burst in 2007-08.
Contributions / Works
Robert Shiller was an inventor of and early contributor to the concept of behavioral economics, which applies sociological and psychological theories to economics in order to interpret economic behavior. He has written prolifically on behavioral finance and macroeconomics. He’s also written extensively about real estate and risk management, including the following influential books:
· Market Volatility (1989), which examines price changes in speculative markets through both mathematical and behavioral lenses
· Macro Markets: Creating Institutions for Managing Society’s Largest Economics Risks (1993), which analyzes biggest economic risks societies face and proposes how to overcome them
· Irrational Exuberance (2000) is an in-depth look at bubbles and investor overvaluation as well as the prediction that the stock market had produced a bubble, based on massive overvaluation of tech stocks, that would inevitably burst; he later expounded further on this in a 2005 update of the book.
He’s also authored several other books about the link between finance and human behavior, including how they influence global finances and how to overcome future economic hurdles caused by this connection.
Much of what he wrote in the 2000s, whether in books or regular columns, warned repeatedly of a growing real estate bubble, which eventually would lead to sharp declines, or a bursting of the bubble.
Case Shiller Weiss and the Case-Shiller Index
In 19991, Robert Shiller formed Case Shiller Weiss, Inc. (CSW), with economists Karl Case and Allan Weiss. The mission of the company was to produce home price indices, and CSW was the first company to make home valuations publicly available on the Internet. This led to his and Case’s co-creation – the S&P/Case-Shiller Home Price Index, which now encompasses various indices, which are calculated monthly:
· National home prices index
· 20-city composite index
· 10-city composite index
· 20 individual metropolitan indices
Recognition for His Contributions
These days, Robert Shiller is in high demand. He regularly writes columns on economics and for The New York Times and other periodicals. His thorough research, analysis, writings, and predictions have garnered him worldwide recognition and acclaim. In fact, many of his contributions and musings on such matters as the dynamics and metrics of fixed income, real estate, and equities have helped shape economic policy and influence other economists.
His being selected as a co-recipient of the Nobel Prize in 2013 was a culmination of more than four decades of significant, often industry-changing, concepts, inventions, and contributions, which he states have directly been due to his desire to impact the world and improve the lives of people and the societies they live in.