Sat, 16 Apr 2005

Irrational Real Estate Exuberance

Robert Shiller, the author of Irrational Exuberance, was on NPR's Talk of the Nation last week to discuss the housing bubble and to tout the second edition of his book. You can listen to it online.

One caller was a real estate agent who claims there's not enough land in Las Vegas and that it will become a land of high-rise living. Another said that Cleveland was becoming too expensive. As an aside, I spent a couple hours in Cleveland in 2000, and left with a favorable impression. Downtown seemed to be undergoing a lot of development.

From the book:

Irrational exuberance is the psychological basis of a speculative bubble. I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases and bringing in a larger and larger class of investors, who, despite doubts about the real value of an investment, are drawn to it partly through envy of others' successes and partly through a gambler's excitement.

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The state is that great fiction by which everyone tries to live at the expense of everyone else. - Frederic Bastiat