The book “Irrational Exuberance” by Robert Shiller

acurawsu

I just finished reading the book "Irrational Exuberance" by Robert Shiller.

There are two editions to the book. The first edition was published just months before tech stocks imploded. The second edition contains much of the old information about our tech bubble, with several new sections relating to our real estate bubble. I read the second edition.

One of the more interesting facets of the book is that the author spends quite a bit of time examining the psychology behind pricing bubbles, and focuses on the complete disconnect the market has from actual fundamentals. He outlines many of the ways people use to justify increased pricing during a bubble ("New Era" thinking).

I did not set out to read the book, I was on a walk and stumbled across a used copy in Half Price Books, in Overlake. In retrospect, I only wish someone had recommended it to me and I may have bought it sooner.

If you have an interest in economics, and the psychological forces that create pricing bubbles, I highly recommend the book. On the other hand, much of the information is technical, and relays on empirical evidence. Some parts can be a tedious read.

I have enjoyed this website for months now, and I check back almost daily. As a token of my appreciation, I would be happy to mail my copy (for free), to The Tim, or to any of the moderators of this board. I only ask that the person that I give my copy to, take the time and create a post expressing their opinion about the book once they are done reading it, then give it to someone else on SeattleBubble.com. PM me and I will mail it. First come, first served.

AcuraWSU

finance

acurawsu - You are right that it is a good book, however it was written by an Economist (as in too much technical jargon, even though I enjoy economics). I met Robert Shiller when I was at WSU and got him to sign my book sitting right above me...That was back when he first proposed having Housing Derivatives in 2003.

The key to bubble markets is that through tough times change is always for the better. The internet companies that survived are now growing up and provide a strong job base in many industries. At the same time MSFT bought up dozens of these nearly bankrupt companies and are finally developing many of these technologies much better than they were initially set up (creating a common thread with other MSFT monopoly products, which is a good thing) Next is Real Estate and will allow some breathing room for companies and people to plan developments better, thus utilizing land resources better (build taller buildings, lol).

rose-colored-coolaid

finance wrote:

The key to bubble markets is that through tough times change is always for the better. The internet companies that survived are now growing up and provide a strong job base in many industries. At the same time MSFT bought up dozens of these nearly bankrupt companies and are finally developing many of these technologies much better than they were initially set up (creating a common thread with other MSFT monopoly products, which is a good thing) Next is Real Estate and will allow some breathing room for companies and people to plan developments better, thus utilizing land resources better (build taller buildings, lol).

This statement is fallacious. A functioning free-market will reward winning ideas and punish losing ideas. Dotcoms with no business model went out of business for being bad companies. The quality ones bought out by Microsoft would probably have survived. Their products being tied into monopoly products is bad for competition. Likewise, this real estate boom has created a lot more McMansions and town homes than 'taller buildings'.

Pndscm

Great book, I just finished it yesterday and although parts are kind of dry it's very interesting to see some psychological analysis of why people will continue to invest irrationally. Anyone have any recommendations for reading in the same vein?