This is virtually unrelated to the world of content, but I had a moment of potential inspiration in the final 10 minutes of my walk to the train station after the podcast I was listening to ended.
The show in question was Planet Money's "What's a Bubble" about the latest Nobel prize in economics given to both Robert Shiller and Eugene Fama. Both won for their studies of markets, but they have diametrically opposed viewpoints on how markets work, and specifically whether market bubbles exist. In short, Fama believes people are rational and therefore prices always reflect current information and markets respond when information changes, which means there are no bubbles. His evidence is that you cannot predict when there will be a fall in prices. On the other hand, Shiller believes people do not act rationally and that market prices can be like a symptom of a mental illness. He identified the 90s stock market and the 00s housing market as bubbles before they crashed. (Listen to the podcast for better explanations in their own words.)
My knee jerk reaction was to expect that the truth is somewhere in the middle. But they appear mutually exclusive?
I'm not an economist, I only played one in college and grad school where I read both Shiller and Fama. The idea of behavioral economics is still a rather new take on the field, using psychology and other social sciences to explain why people make economic decisions. But has it been taken further into human development studies that look into how people can be fundamentally and scientifically different?
I ask because my second reaction to the podcast was that Fama is probably right. I feel that I am generally a rational person and tend to over-analyze more than make impulse decisions. (Checkout candy lines are powerless against me to the detriment of my kids.) But then my third reaction was that someone in my life I know very well surely would argue that Shiller is right, because she doesn't believe people are rational but rather are more emotional. I would go out on a limb and say that she is more of an emotional person than I am in general and we make decisions very differently, often with different conclusions.
So if there are really two people whose natural tendencies on individual decision making are different, then the aggregate market is composed of a portfolio of people who range from classic "economic man" to unpredictable crazy person. So the next step to better understand the market is in fact to understand how people develop these characteristics. This sounds like the nature vs nurture studies. Role of society and family. Evolution and genetic research. Is anyone going as far yet as trying to connect the stock market and neuroscience?
I would read that.
(I didn't know how to fit in this reference, but our hardwired fear of snakes must provide a clue to solving a financial crisis.)
