Robert J. Shiller

Robert J. Shiller
Born	Robert James Shiller 3/29/1946
Birthplace	Detroit, Michigan, U.S.
Nationality	American
Occupation	Economist, academic, author
Title	Sterling Professor of Economics
Employer	Yale University
Known for	Case-Shiller Index, CAPE ratio, Irrational Exuberance, behavioral finance
Education	Ph.D. in Economics, Massachusetts Institute of Technology
Awards	Nobel Memorial Prize in Economic Sciences (2013), Deutsche Bank Prize in Financial Economics (2009)
Website	http://www.econ.yale.edu/~shiller

Robert James Shiller (born March 29, 1946) is an American economist, academic, and author who has spent the greater part of his career at Yale University, where he holds the position of Sterling Professor of Economics. A central figure in the development of behavioral finance and behavioral economics, Shiller has reshaped how economists and investors understand the role of human psychology in financial markets. He is known for co-developing the Case-Shiller Home Price Index, a leading measure of U.S. residential real estate prices, and for creating the Cyclically Adjusted Price-Earnings (CAPE) ratio, a valuation metric for the stock market that has become a standard tool among financial analysts and investors. Shiller gained public prominence for his prescient warnings about speculative bubbles in both the stock market and the housing market, publishing the influential book Irrational Exuberance in 2000, just as the dot-com bubble was about to burst. He continued to warn about a housing bubble in the mid-2000s, well before the 2007–2008 financial crisis. In 2013, Shiller was awarded the Nobel Memorial Prize in Economic Sciences, which he shared with Eugene Fama and Lars Peter Hansen, "for their empirical analysis of asset prices." He has been a research associate of the National Bureau of Economic Research since 1980 and has served in leadership roles in several major economics associations, including as president of the American Economic Association in 2016.

Early Life

Robert James Shiller was born on March 29, 1946, in Detroit, Michigan, United States. He grew up during the post-World War II economic expansion, a period of considerable growth and transformation in American economic life. Detroit, at that time, was one of the most prosperous cities in the United States, serving as the center of the American automobile industry. Shiller has spoken and written about how the economic narratives of everyday life — the stories people tell about prosperity, decline, and financial opportunity — shaped his early intellectual curiosity about economics and human behavior.

Details about Shiller's parents, siblings, and early family life are not extensively documented in publicly available sources. What is known is that his upbringing in a major American industrial city during a time of economic optimism provided a formative backdrop for his later academic interest in the relationship between public sentiment, economic narratives, and market behavior.

Education

Shiller pursued his undergraduate studies and then continued into graduate work in economics. He earned his S.M. (Master of Science) degree in 1968 and his Ph.D. in 1972, both from the Massachusetts Institute of Technology (MIT). His doctoral dissertation, titled "Rational Expectations and the Structure of Interest Rates," was supervised by Franco Modigliani, the Italian-American economist who would himself go on to win the Nobel Memorial Prize in Economic Sciences in 1985. Shiller's dissertation work on interest rates and rational expectations laid the groundwork for his subsequent career-long inquiry into how expectations, psychology, and narratives influence financial markets and the broader economy.

The intellectual environment at MIT during the late 1960s and early 1970s was one of intense theoretical innovation in economics. Working under Modigliani, Shiller was exposed to rigorous quantitative methods and to the study of macroeconomic dynamics, financial markets, and expectations theory. These formative experiences deeply influenced the direction of his research, which would increasingly question the assumption that markets always behave rationally.

Career

Early Academic Career

Following the completion of his doctorate, Shiller began his academic career in university teaching and research. He joined the faculty of Yale University, where he would remain for the bulk of his career. By 1982, he had become a full professor of economics at Yale, and he was later appointed Sterling Professor of Economics, one of the highest academic honors bestowed by Yale University. He also became a fellow at the Yale School of Management's International Center for Finance.

Shiller has been a research associate of the National Bureau of Economic Research (NBER) since 1980, contributing to the organization's work on financial markets, macroeconomics, and behavioral economics.

Challenging the Efficient Market Hypothesis

One of Shiller's earliest and most influential contributions to economics was his challenge to the Efficient Market Hypothesis (EMH), a theory most closely associated with Eugene Fama that asserts financial markets always incorporate all available information into asset prices, making it impossible for investors to consistently achieve above-average returns. In a landmark 1981 paper, Shiller used a statistical model to demonstrate that U.S. stock market prices were far more volatile than they should be if the market were simply reflecting rational expectations about future dividends and earnings. This finding — that stock prices exhibit "excess volatility" — provided empirical evidence that psychological and behavioral factors play a significant role in determining asset prices.

This work was foundational for the emerging field of behavioral finance, which incorporates insights from psychology into the study of financial decision-making. Shiller drew on the intellectual traditions of John Maynard Keynes, particularly Keynes's concept of "animal spirits" — the emotional and psychological forces that drive economic behavior beyond what rational calculation alone would predict. He was also influenced by the work of George Akerlof and Irving Fisher.

Shiller's challenge to the EMH generated considerable debate within economics. Notably, when Shiller was awarded the Nobel Prize in 2013, he shared the award with Fama, whose work had been instrumental in developing the very hypothesis that Shiller had spent decades questioning. The Nobel committee recognized both scholars for their "empirical analysis of asset prices," acknowledging that the understanding of financial markets had been advanced by both the efficient-market framework and its behavioral critique.

The Case-Shiller Home Price Index

In collaboration with fellow economist Karl Case, Shiller developed the Case-Shiller Home Price Index, a statistical tool that measures changes in the value of the U.S. residential real estate market. The index uses a repeat-sales methodology, tracking the price changes of the same properties over time to provide a more accurate picture of housing market trends than simple average or median price measures. The Case-Shiller Index became one of the most closely watched indicators of the U.S. housing market, used by economists, policymakers, investors, and the media to gauge the health and direction of real estate values.

The development of this index was not merely an academic exercise. It provided a crucial tool for identifying housing market bubbles and downturns. When U.S. housing prices began to rise sharply in the early 2000s, the Case-Shiller Index helped quantify the extent of the appreciation and, ultimately, the magnitude of the subsequent decline during the 2007–2008 financial crisis.

The CAPE Ratio

Shiller, in collaboration with John Y. Campbell, co-developed the Cyclically Adjusted Price-Earnings ratio (CAPE), also known as the Shiller P/E ratio. This measure divides the current price of a stock or stock index by the average of its inflation-adjusted earnings over the previous ten years. By using a ten-year average, the CAPE ratio smooths out the short-term fluctuations in earnings caused by business cycles, providing a longer-term view of market valuation.

The CAPE ratio has become one of the most cited measures of stock market valuation. When the ratio is significantly above its historical average, it has been interpreted as a signal that the market may be overvalued; when it is below average, the market may be undervalued. Shiller has made the historical data underlying the CAPE ratio publicly available through his website, contributing to its adoption among both academic researchers and professional investors.

Irrational Exuberance and Bubble Warnings

Shiller's 2000 book Irrational Exuberance brought his academic research to a broad public audience. The title was borrowed from a phrase used by Federal Reserve Chairman Alan Greenspan in a 1996 speech. In the book, Shiller argued that the surging U.S. stock market of the late 1990s was driven by speculative excess rather than by sound economic fundamentals. The book's publication coincided almost exactly with the peak of the dot-com bubble, and the subsequent crash of the Nasdaq and broader stock markets appeared to validate Shiller's analysis.

Shiller updated Irrational Exuberance in a second edition (2005), in which he extended his analysis to the U.S. housing market. In 2003, he co-authored a Brookings Institution paper titled "Is There a Bubble in the Housing Market?" In 2005, he warned publicly that "further rises in the [stock and housing] markets could lead, eventually, to even more significant declines" and that "a long-run consequence could be a decline in consumer and business confidence, and another, possibly worldwide, recession."

Writing in The Wall Street Journal in August 2006, Shiller again warned that "there is significant risk of a ... possible recession sooner than most of us expected." In September 2007, approximately one year before the collapse of Lehman Brothers, he published an article predicting an imminent collapse in the U.S. housing market and subsequent financial panic. The accuracy of these warnings, issued well before the 2007–2008 financial crisis and the Great Recession, significantly enhanced Shiller's public reputation and influence.

Narrative Economics

In his later career, Shiller expanded his research agenda to explore the role of narratives — the stories, ideas, and popular beliefs that spread through populations — in driving economic events. This line of inquiry culminated in his 2019 book Narrative Economics: How Stories Go Viral and Drive Major Economic Events. In this work, Shiller argued that viral stories — about new technologies, housing prices, economic confidence, or financial ruin — can themselves become causal forces in the economy, influencing behavior and market outcomes in ways that standard economic models fail to capture.

Jonathan Portes of King's College London, reviewing the book for the International Monetary Fund's Finance & Development publication, engaged with Shiller's thesis about the power of narratives in shaping economic outcomes. Shiller has described how digital tools, including historical newspaper databases, have aided his research into how narratives spread and influence economic behavior over time.

Views on Cryptocurrency

Shiller has also commented on contemporary financial phenomena, including the rise of Bitcoin and other cryptocurrencies. In a 2017 interview with Yale Insights, he was asked whether Bitcoin constituted a speculative bubble. Shiller applied his framework of behavioral finance and narrative economics to the cryptocurrency phenomenon, analyzing the psychological and social dynamics driving interest in digital currencies.

MacroMarkets LLC

Beyond his academic work, Shiller co-founded the investment management firm MacroMarkets LLC, where he served as chief economist. The firm sought to apply academic insights about financial markets and risk management to the development of innovative financial products. MacroMarkets LLC reflected Shiller's interest in creating practical financial tools — such as the Case-Shiller Index and related instruments — that could help individuals, investors, and institutions better manage economic risks.

Professional Leadership

Shiller has held leadership positions in several major economics organizations. He served as vice president of the American Economic Association in 2005 and was elected president of the association for 2016. He also served as president of the Eastern Economic Association for 2006–2007. In 2016, he participated in a public conversation at the Council on Foreign Relations, discussing the importance of economic irrationality, crowd behavior, and other elements of behavioral finance in understanding financial markets.

Personal Life

Shiller resides in New Haven, Connecticut, where he has been based for the duration of his career at Yale University. He has written and spoken publicly about his views on the American economy, the housing market, and the role of narratives in shaping economic behavior, but has maintained a relatively private personal life outside of his academic and public intellectual activities. In a 2017 essay published in The New York Times, Shiller discussed the transformation of the American Dream, reflecting on how aspirations related to homeownership and economic mobility have evolved over time in the United States.

Recognition

Shiller's contributions to economics and finance have been recognized with numerous awards and honors. The most prominent is the 2013 Nobel Memorial Prize in Economic Sciences, which he shared with Eugene Fama and Lars Peter Hansen. The Royal Swedish Academy of Sciences awarded the prize to the three economists "for their empirical analysis of asset prices," noting that their research had profoundly shaped the understanding of how asset prices are determined in the short and long run. MIT News noted that Shiller was recognized for his work on the long-term fluctuations of asset prices in markets.

In 2009, Shiller received the Deutsche Bank Prize in Financial Economics, awarded by the Center for Financial Studies in Frankfurt, in recognition of his research on financial markets and economic volatility.

Shiller was ranked by the IDEAS RePEc publications monitor in 2008 as among the 100 most influential economists in the world, a ranking he continued to hold as of 2019. In 2010, he was named to Foreign Policy magazine's list of the Top 100 Global Thinkers. He was also named to Bloomberg's list of the 50 most influential people in global finance.

Thomson Reuters had previously predicted that Shiller would win the Nobel Prize, based on citation analysis of his published work.

Legacy

Robert J. Shiller's legacy in economics is defined by his role in establishing behavioral finance as a major subfield within economic science. By demonstrating empirically that financial markets are subject to the influence of psychology, emotion, and narrative — and not solely to rational calculation — he fundamentally expanded the scope of economic inquiry. His work challenged the dominance of the Efficient Market Hypothesis and helped open a productive intellectual dialogue between proponents of market efficiency and those who emphasized the role of irrational behavior in financial markets. The fact that Shiller shared the Nobel Prize with Fama, a leading advocate of the EMH, underscored the Nobel committee's recognition that both perspectives had contributed essential insights to the understanding of asset prices.

The Case-Shiller Index and the CAPE ratio remain in widespread use among economists, financial professionals, and policymakers. These tools have influenced how housing markets and stock markets are monitored, analyzed, and regulated. Shiller's public warnings about the dot-com and housing bubbles — issued before the respective crashes — demonstrated the practical value of behavioral economics in anticipating financial crises.

Shiller's concept of narrative economics has opened new avenues of research, encouraging economists to study how stories, media coverage, and social contagion shape economic behavior and outcomes. This framework has implications not only for financial markets but also for understanding public responses to recessions, pandemics, and technological change.

As a teacher and mentor, Shiller has influenced a generation of economists. Among his doctoral students at Yale is John Y. Campbell, who became a noted financial economist in his own right. Shiller's commitment to making economic data publicly available — including the historical data underlying the CAPE ratio — has contributed to greater transparency and accessibility in financial research.

Through his books, public commentary, and academic research, Shiller has bridged the gap between academic economics and public understanding, making complex ideas about financial markets accessible to a broad audience.