Tuesday, October 15, 2013

Robert Shiller: ‘When I look around I see a lot of foolishness, and I can’t believe it’s not important economically’

Robert Shiller: ‘When I look around I see a lot of foolishness, and I can’t believe it’s not important economically’:
NI: So, is the old view that Fama and some of the other founders invented modern finance with the [capital asset pricing model] and efficient markets, and you and the behavioralists smashed it to smithereens wrong?
RS: The capital asset pricing model is a view of how to form an optimal portfolio. That is an interesting model. People who do portfolios ought to study mean variance model as a first approximation to what they should be doing in terms of portfolio management. But they took a next step, which is saying that everybody already does that. That's where I start to part company. They assume people are already doing that. That can’t be right, because nobody understood it when the model was first developed. There’s an element of absurdity that they refuse to acknowledge. They fell in love with the model too much.
Oh, NO! Is he going to tell this to Fama during Nobel dinner?

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