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Nobel-winning economist Shiller
knows both prices and values

A cynic, Oscar Wilde wrote, is someone who knows the price of everything and the value of nothing. Robert Shiller, Yale's Sterling Professor of Economics and latest Nobel Prize winner, knows a lot about prices. But he is no cynic.

"I was attracted to this department over 30 years ago," Shiller said at a press conference today, "not just for the intellectual depth, but for the morality. It’s a matter of getting your real values integrated with your research.”

The Nobel, which Shiller shares with Eugene Fama and Lars Peter Hansen of the University of Chicago, is "for their empirical analysis of asset prices”: why do stock prices jump around so much, and what sense can be made of them? Shiller's contribution—described in our 2009 profile by the New York Times's David Leonhardt ’94—was to chart long-term trends in the ratio of prices to dividends. Over the decades, patterns of rising price-earnings ratios allowed Shiller to spot bubbles, including dot-com and housing, that would surely burst. 

As you might guess from the title of his bestselling 2000 book Irrational Exuberance, Shiller's work in behavioral economics rejects the classical notion that markets and people behave along strictly rational lines.

What's more, he said at today's press conference, finance is not "a field about how to get rich." Rather, it's "the study of human activity at large. Just about any useful thing that we would like to get done involves groups of people”; financing provides resources and incentives to accomplish those useful things.

"Rising inequality," Shiller continued, is the most important problem facing the country and the world. "This is a problem that has solutions. Many of them are financial solutions. Finance is substantially about risk management. If it’s applied right, if it’s democratized—if the real tools are made useful to real people and not just the minority of people—it can help solve these problems."

Among Shiller's own efforts at democratization are free online courses on financial markets: one, available now through Open Yale Courses, and another beginning next year on Coursera.

At the press conference, Shiller said modestly that he sees his work “as a minor addendum to a huge body of work that others have accumulated.” But just in case the bestselling, Nobel-winning Sterling professor should get too hoity-toity, next semester he will teach Yale's introductory macroeconomics class, "populated heavily by freshmen."

"The problem is," Shiller continued, "that freshman tend to be very critical of their professors. So I’m viewing that as a challenge.”

Filed under Robert Schiller, Nobel Prize, economics
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