How We Can Escape This Mess

This Yale economist says you need to understand human behavior to break boom-and-bust cycles.

Robert Shiller knows us better than we know ourselves. In his bestseller, Irrational Exuberance, the Yale economics professor popularized the idea that Internet stocks represented a dangerous bubble that would end badly for investors. His timing was flawless: The book came out in March 2000, just as the great bull market of the 1990s was ending and many Internet stocks in particular were about to slide into a death spiral. A later edition of Irrational Exuberance, published in 2006, warned of the housing bubble that triggered our current misery.

Shiller says it's his knowledge of human behavior, not numbers and economic theory, that has allowed him to identify bubbles and warn of subsequent meltdowns. But he is also a heavyweight when it comes to analyzing the numbers. He helped develop the Standard & Poor's/Case-Shiller Home Price indexes, which are the standard in tracking home-price changes in the U.S.

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Bob Frick
Senior Editor, Kiplinger's Personal Finance