by Yale economist Robert Shiller in yesterday's NYTimes. Shiller is a U of M alum, the co-founder of the Case-Shiller housing index, the author of "Irrational Exuberance," and a leading behavioral finance economist.
HT: Greg Mankiw
Monday, March 3, 2008
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4 comments:
"Mr. Bikhchandani and his co-authors worked out this rational herding story carefully, and their results show that the probability of the cascade leading to an incorrect assumption is 37 percent. In other words, more than one-third of the time, rational individuals, each given information that is 60 percent accurate, will reach the wrong collective conclusion."
This is kind of scary isn't it. This kind of reminds me of the greater fool theory in which people believe that they will be able to get someone else to pay a higher price for an asset than the original amount paid by the owner. I think Shiller's argument about over pessimism is very intriguing but I have to be believe that a lot of the institutional guys and gals out there will weaken this effect because they will step in and buy large positions at low prices.
it kind of reminds me of GLOBAL WARMING
http://www.nytimes.com/2007/10/09/science/09tier.html
Just to clarify what I mean, take a look at that article, and tell me you couldn't substitute "global warming" in there..
.html is whats cut off
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