It’s no surprise that a man described by his friends as someone interested in basically everything would crack open the field of economics and take a thorough look at other disciplines as well. When Shiller entered college, he had one big reservation: declaring a major. "It meant I had to give up my childhood dreams of doing everything." He describes how painful it was for him to choose, never knowing whether he’d made the right decision (though most people today would say he absolutely did). It was economics, in the end, but his interest in many sciences would pave the way for a rather different approach to his chosen subject.
Challenging the status quo
It was during his undergraduate studies at the University of Michigan that Shiller first had the idea that psychological insights had to be included into economic analysis. Eventually, thanks to his wife’s encouragement, he dug deeper. “She nudged me back into thinking about psychology,” Shiller remembers. “I might not have been the economist that I ended up as without her influence.” A focal point of his research became the idea that finance and the global economy were driven by people’s behavior and thinking. Back in the 1970s and 1980s, when Shiller first arrived on the scene, economics had become very mathematical. He believed it was wrong to be too rigid about what was a very human field.
Why financial markets aren’t efficient
"Economists look at the stock market, they see it going up and down, and usually they don’t have the foggiest notion why. They think they need an excuse, so they figured out a theory that excused them from not knowing." Shiller is talking about the efficient market hypothesis. He wanted to give “a more truthful account” which, ultimately, led to his first highly influential paper in 1981. His longtime friend and colleague John Campbell at Harvard University still remembers the moment he read that paper. He was waiting at a train station in New Haven, and immediately wanted to meet its author.