Herd About the Housing Bubble?
Yesterday econ/real estate guru Robert Schiller penned an article for the Times examining why Greenspan, market experts and individual investors didn’t see warning signs of the disastrous housing bubble: The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United…
Yesterday econ/real estate guru Robert Schiller penned an article for the Times examining why Greenspan, market experts and individual investors didn’t see warning signs of the disastrous housing bubble:
The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks. Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble.
Schiller concludes that the lack of foresight about the bubble has to do with “herd behavior” and “information cascade,” whereby rational investors’ individual decisions add up based on incomplete info. The phenomenon helps explain why an entire nation would be under the thrall of the notion that housing=a great investment. A cascade is possible when a whole country buys into the same belief despite individual analysis that refutes prevailing wisdom. The result? Rising prices and a big bad bubble. So what’s next? “It is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels,” writes Schiller.
How a Bubble Stayed Under the Radar [NY Times]
Collage by Amy Jaz.
“I do beleive that a 19% drop would be historically as much as things drop in the NY metro area.”
-40% from 80’s to 90’s. The bigger the boom, the bigger the bust.
I’m not American, first of all. And good thing all the Europeans are preferring this suburb lately then.
Last time a suburb was a top 10 destination on Lonely Planet was???
You are REALLY ignorant, 1:41. Those population totals include parts of London, Paris and Madrid that are the EXACT same thing as Brooklyn.
Or did you think Paris’s downton core was 10 million people?
1:31 Don’t be so American in your mentality.
Outside of the US a city is usually pretty big.
Lets see..Paris/London/Madrid 10/8/3.5 million respectively
I live in Brooklyn-I like Brooklyn,but please-it’s a Suburb.
Brooklyn isn’t a city in any real sense. The only difference between Brooklyn and NY’s other suburbs is that you get to pay city income tax, and therefore your RE tax is a little lower.
Hey tWhat, do you know the property you live in? Do you have a job?
Sorry, but you can’t cut and paste an answer from another site here. It is a simple yes or no.
“I mean, if you write a zillion columns, surely something will be true at some time.”
So if a malignant cancer patient did not die exactly when expected, they are all of a sudden cured? This boom/bust is a process, not an event. Robert Shiller’s zillion columns were spot on about the process. Apparently, few have listened.
brooklyn is a city of 2.4 million people.
it’s probably larger than any of the other “3 cities” you’ve lived in.
1:24 #1, i.e., “don’t be be a loser” – my point is you are illiterate.
Er….sorry to upset a lot of people’s perception of Brooklyn but it’s actually a SUBURB-I’ve lived in 3 different cities in 3 different countries and Brooklyn is definitely a SUBURB