Irrational Exuberance: Second Edition

In this timely and prescient update of his celebrated 2000 bestseller Irrational Exuberance, Robert J. Shiller returns to the topic that gained him international fame: market volatility. Shiller breaks new ground in this second edition by laying out in even clearer and starker terms the market excesses that continue to destabilize the economy and disrupt our lives. Having predicted the stock market collapse that began just one month after the first edition was published, he now expands the book to cover other markets that have become volatile, particularly the recently red-hot housing market. He includes a full chapter on domestic and international housing prices in historical perspective. Shiller amasses impressive evidence to support his argument that the recent housing market boom bears many similarities to the stock market bubble of the late 1990s, and may eventually be followed by declining home prices for years to come. After stocks plummeted when the bubble burst in 2000, investors moved their money into housing. This precipitated the inflated real estate prices not only in America, but around the world, Shiller maintains.Hence, irrational exuberance did not disappear-it merely reappeared in other settings. Building on the original edition, Shiller draws out the psychological origins of volatility in financial markets, this time folding real estate into his analysis. He broadens the evidence that investing in capital markets of all kinds in the modern free-market economy is inherently unstable-subject to the profoundly human influences captured in Alan Greenspan's now-famous phrase, "irrational exuberance." The ultimate solution to this troubling condition, he maintains, would involve better-designed public institutions such as a revamped social security system, new forms of insurance to protect people's incomes and homes, and a broader array of investment options. As was true of its predecessor, the second edition of Irrational Exuberance is destined to be widely read, discussed, and debated.

About the Author :
Robert J. Shiller is the Stanley B. Resor Professor of Economics at Yale University. He is author of "The New Financial Order: Risk in the 21st Century" (Princeton) and "Market Volatility and Macro Markets", which won the 1996 Paul A. Samuelson Award.

Review :
Robert J. Shiller, Co-Winner of the 2013 Nobel Prize in Economics Winner of the 2000 Commonfund Prize for the Best Contribution to Endowment Management Research From review of Princeton's previous edition: "Robert J. Shiller ... has done more than any other economist of his generation to document the less rational aspects of financial markets."--Paul Krugman, New York Times From review of Princeton's previous edition: "Irrational Exuberance is not just a prophecy of doom... [I]t is a serious attempt to explain how speculative bubbles come about and how they sustain themselves."--John Cassidy, New Yorker From review of Princeton's previous edition: "Informative and well-argued ... A calm and reasonable antidote to today's euphoria."--Jeff Madrick, New York Review of Books From review of Princeton's previous edition: "What set off this speculation and what feeds it? Shiller ranges widely his explanations, laying them out in the first 168 pages in easy-to-read, sometimes passionate prose... [T]hose first 168 pages are must reading for anyone with savings invested in stocks."--Louis Uchitelle, New York Times Book Review From review of Princeton's previous edition: "Mr. Shiller's book offers a dose of realism... [I]t presents a message investors would be wise to head: Make sure your portfolio is adequately diversified. Save more and don't count on double-digit gains of the past decades continuing to bail you out during retirement."--Burton G. Malkiel, Wall Street Journal From review of Princeton's previous edition: "Although its message may be unwelcome to many, this important book should be read by anyone interested in economics or the stock markets."--Rene M. Stulz, Science From review of Princeton's previous edition: "Dazzling, richly textured, provocative . . By far the most important book about the stock market since Jeremy J. Siegel's Stocks for the Long Run."--William Wolman, Business Week From review of Princeton's previous edition: "Shiller has provided an accessible guide to the usually impenetrable literature on financial markets, especially the American stock market."--Foreign Affairs From review of Princeton's previous edition: "Shiller contends that investor psychology is so given to herd behavior that it's almost impossible to manipulate or even influence. The market can 'go through significant mispricing lasting years or even decades.'"--Robert J. Samuelson, Washington Post From review of Princeton's previous edition: "Irrational Exuberance should be compulsory reading for anybody interested in Wall Street or financially exposed to it; at the moment, that would be roughly everybody in the United States."--Economist From review of Princeton's previous edition: "[An] excellent new book... If you want to preserve capital, unload most of your stocks and invest in government bonds."--Steve H. Hanke, Forbes From review of Princeton's previous edition: "Likely to be the year's most-talked-about finance book... You can agree or disagree with it. But you owe it to yourself to read it if you are investing in equities or contemplating doing so."--Fred Barbash, International Herald Tribune From review of Princeton's previous edition: "Irrational Exuberance is likely to cause a stir... Shiller illustrates how the current market is like a naturally occurring Ponzi scheme in which investors become promoters for the game after receiving initial payments with money taken from subsequent investors."--David Henry, USA Today From review of Princeton's previous edition: "Irrational Exuberance is not billed as a personal finance book. But it is. You can agree or disagree with it. But you owe it to yourself to read it if you're investing, or contemplating investing, in inequities."--The Washington Post From review of Princeton's previous edition: "A must-read ... refreshing, well-reasoned ... and very readable."--Michael P. Niemira, Barron's From review of Princeton's previous edition: "So why have share prices soared so high in the past five years, taking market valuations past all historical records? Professor Shiller's answer, as the title indicates, is not encouraging. His message is: diversify now as much as you can, and batten down the hatches."--Diane Coyle, Independent From review of Princeton's previous edition: "Shiller has written a crystal-clear and tough-minded critique..."--David Warsh, Boston Globe The point of Irrational Exuberance is not to help investors dump their houses before the current exuberance fades. It is to deepen our understanding of the events we are watching as one bubble gives birth to another and to encourage readers to think about economic behavior and economic policies that can cushion the nasty side of volatility."--Sharon Reier, The International Herald Tribune "The first edition of this book was widely read because of its timing. This one, too, seems perfectly timed, coming when we're starting to fear we've been fooling ourselves. Again... There's a world of important information for everyone."--Lyn Miller, USA Today "The second edition's new component ... is Shiller's exploration of how market psychology has responded to the ensuing five years of retrenchment. One chilling conclusion he reaches from his knowledge of past market performance is that the 2005 market may still be correcting and that a return to 2000 levels may be a decade away. He further warns that many investors are still too heavily invested in equities and that proposals to invest Social Security funds in the stock market would subject the retirement system to unacceptable risk. Shiller expands his focus to include the booming real estate market where he sees another speculative bubble building."--Library Journal "There's plenty of new material in this edition... Chief among the new additions is Shiller's deeper focus on recent excesses in the stock market and his skepticism about investing in real estate... Shiller's ideas have so many devoted followers that I wouldn't be surprised to see many more editions."--Angele McQuade, BetterInvesting "Yale University Professor Robert Shiller pretty much called the stock market drop when this book was first published in 2000. In this fact-packed book, Shiller describes the psychological origins of volatility, among other things. And in the newest edition, Shiller compares the recent housing boom to the stock market bubble of the 1990s."--Registered Rep.