Robert Shiller: ‘Gut Feelings’ Are Driving The Markets

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Robert Shiller recently wrote a great article in The New York Times titled – ‘Gut Feelings’ Are Driving The Markets in which he discusses why the U.S stock market is trading at a very high level today. The data shows where the market stands, but doesn’t tell us how it got there. For an explanation of that, he says we need to take into account a factor that sounds very unscientific: “animal spirits,” sometimes called “gut feelings.” Here’s an except from the article:

Long before the Trump presidency we saw milestones in public awareness of thinking that comes “from the gut.” For example, there is the 2001 best seller by Jack Welch, “Jack: Straight From the Gut,” (written with John A. Byrne) about his successes as chief executive of General Electric from 1981 to 2001. Mr. Welch described his management style as intuitive, and not relying on experts, whose analyses he viewed as often phony. Mr. Welch says, for example: “I crossed out the payback analysis on his last chart. I drew an “X” over the transparency and scrawled the word Infinite to make the point that the returns on our investment would last forever. I meant it.” Whether Mr. Welch’s supposed genius has been called into question by the sharp drop in share value of G.E. after he left the company is a matter of debate.

The 1997 book “Rich Dad Poor Dad, written by Robert Kiyosaki, with Sharon Lechter, described two fathers (one his own, the other a friend’s)The book’s publisher, Plata Publishing, reported that the book sold nearly 40 million copies as of 2017. His own, poor dad had college degrees, deferred to authority and told his son that many things were impossible. The uneducated but rich dad told him he should think about how he can make his dreams a realityDonald Trump comes across to many many people rather like the rich dad. (Kiyosaki and Trump have co-authored two books, in 2006 and 2011.)

Then there is the 2011 book “Steve Jobs,” by Walter Isaacson, which described the co-founder of Apple this way: “Jobs was more intuitive and romantic and had a greater instinct for making technology usable, design delightful, and interfaces friendly.”

We are being saturated with these kinds of narratives today: describing inspired young people, some of whom drop out of college, who surpass overly polite conformists pursuing dull, bureaucratic work lives. For people who buy into this dream, one simple step is to avoid the mistake of missing out, by acting like a rich person and buying stocks.

This is obviously not an explanation for the level of the entire market, but it is surely part of it.

We have a stock market today that is less sensible and orderly than usual, because of the disconnect between dreams and expertise.

You can read the original article here: Robert Shiller – ‘Gut Feelings’ Are Driving The Markets.

For more articles like this, check out our recent articles here.

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