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Biology of Financial Market Instability

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The New Palgrave Dictionary of Economics

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Abstract

Research in the biology of risk taking is today helping solve a problem identified in 1981 by Robert Shiller. In an influential article criticising the efficient markets hypothesis, Shiller demonstrated that ‘measures of stock price volatility over the past century appear to be far too high – five to thirteen times too high – to be attributed to new information about future real dividends’. His paper has been debated ever since, but if it was pointing out a real phenomenon in 1981 then that point could be made even more forcefully today as the frequency and severity of market bubbles and crashes – in particular the housing bubble of 2002–07 and the credit crisis of 2008–09 – has only increased. How could biology help account for volatility of this magnitude and destructiveness?

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    John Coates & Lionel Page

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Coates, J., Page, L. (2018). Biology of Financial Market Instability. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_3023

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