Filed Under:

What's A Bubble?

Play associated audio

Robert Shiller was surprised when he got the call telling him he'd won the Nobel Memorial Prize in economics — surprised that he'd won (of course), but also surprised that he was sharing the award with Eugene Fama.

"He and I seem to have very different views," Shiller told me. "It's like we're different religions."

In particular, they have very different views about economic bubbles.

"The word 'bubble' drives me nuts, frankly," Fama told me.

Fama believes markets are basically rational. At any given moment, he says, prices reflect the collective wisdom of everyone in the market. If it were clear that prices were irrationally inflated, investors would stop buying en masse — and prevent a bubble from getting out of control, he says.

Shiller, on the other hand, is famous for describing bubbles, and for predicting the two big ones of our time — the dot com bubble and the housing bubble.

Fama is unimpressed. "What happens each time is the media goes in and finds somebody who predicted it and that person gets anointed," he says. "You don't go back and look at past predictions and see, 'Is this just luck?'"

Fama says if Shiller could predict, say, the next 10 bubbles, he would be convinced. Shiller says he thinks he probably could predict the next 10 — if he lived long enough.

This is more than an academic debate. If you believe bubbles are predictable then maybe you can slow or stop them. If you think they're hard or impossible to spot, there's not much to be done.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

NPR

No Longer Omar: Actor Michael K. Williams On Lucky Breaks And Letting Go

Over the course of his career, Williams says he's learned to separate himself from his characters (like The Wire's Omar). In HBO's The Night Of, he plays a powerful prison inmate named Freddy.
NPR

#FoodPorn, Circa 1600s: Then And Now, It Was More About Status Than Appetite

A new study of old masters finds that capturing and showing off decadent and expensive meals is a decidedly old-fashioned practice. Like today's Instagrammers, it was all about projecting an image.
WAMU 88.5

The Legality Of Restoring Virginia Voting Rights

Virginia's governor is bypassing the commonwealth's Supreme Court ruling and restoring felon voting rights individually. Kojo examines Terry McAuliffe's move with a legal expert.

NPR

The Big Internet Brands Of The '90s — Where Are They Now?

Verizon's purchase of Yahoo will close the book on one of the oldest Internet companies. What happened to the other famous '90s brands, like GeoCities, Netscape and CompuServe? A nerdy remembrance.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.