In my previous two blogs, I highlighted the works of two eminent behavioral economists: Nobel laureates Richard Thaler and Daniel Kahneman. Thaler taught us that we need be nudged to do things today that are good for our future financial well being, like starting to save early for retirement. Danny Kahneman taught us that most people are loss-averse, unwilling to take risk for fear of losing money. Or if they do invest, they cash out too early, thus missing out on the bounteous reward of long-term investing.
Today, I want to pay tribute to a third behavioral economist: professor Robert Shiller of Yale University. Shiller shared the Nobel Prize in 2013 with Eugene Fama and Lars Hansen, both from the University of Chicago. Fama popularized the idea that stock markets are “efficient”, meaning that the market prices stocks so precisely that on average, the price of a stock is “just