Robert Shiller, one of the guys behind the S&P Case-Shiller Index, spoke at Seattle Pacific University; his presentations focused on the role that psychology plays in economic markets. The primary thesis is that economic markets are strongly influenced by psychology that seems rational to individuals, but on the whole is “collective madness”.

During the session, Shiller mentioned a localized Los Angeles housing bubble in 1885, describing the mentality in 1885 Los Angeles as people thinking “Los Angeles is special!” He quoted from an article in the LA Times which was published during the aftermath of the collapse in 1886:

We Californians have learned something. And that is that home prices can’t just go up forever—they have to be supported by something. Never again will Californians make this mistake.

SeattleBubble.com has the notes of the presentation and even the audio. Interesting.

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