Economist Robert Shiller thinks his peers have missed something big. Most experts in his sphere believe the cogs of the economy are turned by policies and mathematics. But Nobel prize-winning Shiller has always sought out the human side of the so-called dismal science.He instead sees stories, beliefs and, most dangerously, irrational greed as key drivers of the global economy, wedding maths and psychology together.
Shiller would know. He has famously predicted the past two to topple the US economy. His reputation has been built on sounding the alarm ahead of the dotcom bubble in the early 2000s and the US housing crash in the run-up to the financial crisis.In 2013 he won the Nobel prize for his work on what drives asset prices. Shiller had challenged the theory that markets are efficient and argued they are in fact vulnerable to speculative bubbles inflated by a groundless clamour among investors.
"Sometimes narratives reveal true facts, like how to build a steam engine, but mostly it is attitudes, tastes, beliefs and animal spirits that are conveyed through narratives. If we don't take account of them, we are missing in many cases the essential reasons for economic changes." "As a teenager, I was already into behavioural economics. I also like mathematical economics, I wanted to keep the two together."Shiller predicted the US housing crisis, which sparked the GFC.He has returned to university, but this time to serve as Yale's sterling professor of economics, the highest academic rank at the esteemed institution., suggests that stories and beliefs have the power to move economies when they "go viral".
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