Talking about Irrational Exuberance Part 2 Econoday Focal Point 9/13/00 By Evelina Tainer, Chief Economist

Our roundtable panel concludes the second part of its discussion of Robert Shiller's new book "Irrational Exuberance." Panel Members: Gib Bassett, Department Chair and Professor of Finance at University of Illinois at Chicago; Pat Rocco, Head of Research at Twin Capital Management; Mark Pender, financial writer and editor; Anne Picker, International Economist at Econoday, and Evelina Tainer, Chief Economist at Econoday.

GIB: Suppose markets aren't efficient for all the behavioral reasons described by Shiller. Should market institutions be designed to take account of the behavioral biases that cause bubbles?

EVELINA: Well, the '87 crash was largely attributed to program trading and this was probably unfair. Since then circuit breakers and limits have been instituted. If the market moves by a certain amount per day there's a stop. Some people think that this actually hurts the market even more because there's a reduction of free trade.

MARK: I kept thinking when I was reading the book, that if Shiller is right about the bubble then maybe we'll find out if circuit breakers work. And if we have a fall, we really don't know how much these circuit breakers will affect people's minds.

EVELINA: It probably would scare me more to have a circuit breaker in place.

PAT: It would accelerate your decision to get out. You wouldn't want to be the one who would have to wait over the uncertain period, to have to wait for the reopening in that security or market. That's exactly the problem with those kinds of circuit breakers. It's a perverse incentive to make you want to sell even faster, to avoid the stop. That's why the stops are public, the information is laid out very clearly so that people don't mistakenly think they're going to occur quicker than they might.

MARK: Gib's point is getting back to what Greenspan is trying to do with the "irrational exuberance" quote in the first place, which was some kind of a common sense, or some kind of a centralized common sense to bring everybody back in line.

GIB: Think about this from the point of view of efficient markets. The corollary to efficient markets is that markets are good. Now suppose markets aren't efficient for all the reasons that Shiller describes, then market outcomes are imperfect, they may not be good. In fact, they cause bubbles, and bubbles have real consequences and ...

PAT: And we ought to deal with them.

EVELINA: But the question isn't if we have bubbles, but if everybody has fair access to the information about the bubble? If everybody is aware of all this, then everybody has equal opportunity.

GIB: We have drug laws. The government does things that restrict people. You could say I should be allowed to trade because it only affects me. There are no externalities from that. But what about the bubble having a big positive externality on the whole economy.

PAT: And a negative externality on the way down.

MARK: As soon as you announced that a committee was formed to look into bubble management, you'd have a big market problem. Forming such a committee would be a very delicate political act.

EVELINA: That would cause the bubble to collapse, right?

GIB: There are two sentences in the last two paragraphs of the book. After presenting his argument, Shiller says, "Ultimately in a free society we can not protect people from all the consequences of their own errors ..." Milton Friedman could have easily written that. And the other sentence near the end is, "By analogy, most of the thrust of our national policies to deal with speculative bubbles should take the form of facilitating more free trade as well as greater opportunities for people to take positions in more and freer markets." Forget about whether I agree with that. If you just spent the entire book telling me that people do all these crazy things for all the behavioral reasons that psychologists have identified, then how do you say that sentence? More free trade means greater opportunities for more people to take more positions in greater and freer markets that have all the potential of making a big bad bubble.

MARK: Yes, Shiller made an interesting point, that public policy is still coming to terms with managing irrational behavior for everyone's protection. And that would go against the free trade comment that you had just quoted. So maybe he's conflicted a little bit.

EVELINA: He does sound conflicted. Because the next sentence after the one Gib read is, "A good outcome can be achieved by designing better forms of social insurance." Talk about moral hazard problems. Do we really need social insurance so people can gamble as much as they want, and lose as much as they want, and then get their money back? That doesn't seem like a good outcome.

PAT: To his credit, I think he's pushing an idea he's pushed for a number of years: macro markets. When he's talking about freer trade, I think he's talking about creating classes of assets, for example, to insure your labor income and the equity in your home, two of the biggest sources of wealth that people have that are at risk. If you allow people to have access to more uncorrelated assets, then people could take positions in them that would help offset risks. But, I am sympathetic to everyone's point that the same things might go wrong with the new assets. People would mis-price the contingent claims on housing equity; people would pay too much or too little or ignore the ability to hedge their own income risk. So, yes, if you fundamentally believe as Gib has laid out that people suffer from these behavioral limitations, then it may not help you to facilitate trade and create different types of investments.

MARK: Yet one of the greatest services a free marketeer can do is point out a possible problem in the structure to help prevent any backlash against it.

PAT: Of course he does. Shiller does state there are some very simple things we could do ranging from encouraging the creation of these macro markets to talking about real diversification in IRA/401(k) investment options. Plus, people need to be reminded that stocks don't always go up. In other words, you've got to unwind the marketing hype that's been built up in the market. And then there's a public policy issue that we haven't mentioned yet. There's a presidential election under way with candidates who have very different views on how social security might be structured. Shiller has a very specific statement on it: no public investment, no amount of trust fund assets should be invested in the equity market. That's potentially a big debate point, and whether this book plays prominently in this debate is hard to see at this point.

GIB: And Bush goes against this. But Gore, because he's got to stand behind these eight years of growth, can't say, 'No, we're not going to do that." In other words, if Shiller's right and it would be horrible public policy to invest social security in the stock market, then it would be difficult for either party to make that a part of what they're going to be talking about this year. I haven't heard. Does Gore have a position on this?

EVELINA: I think he's stressing the payment of the debt. He doesn't seem to be saying much about the social security aspect, but only that paying down the debt would be good for the economy. I haven't heard him say anything on the other side.

PAT: That's another way of saying no. Social security reform under Gore would perhaps involve a prescription plan under Medicare, but would not involve restructuring the nature of the trust funds or the current payroll tax scheme. It seems to me that Bush has said changes in social security would be a piece of his economic program were he to be elected.

ANNE: Basically, what Lieberman and Gore said last night did not touch on anything to do with changing the way social security is financed.

MARK: Shiller mentions that should the social security proposal start building up steam, you might see at least a temporary benefit for the stock market. An outcome that would make bubble pressures, if they are there, even worse.

ANNE: It would exacerbate them, absolutely.

EVELINA: On public policy. One of the great public policy things would be greater education. This is one of the things he brought up in the 12 factors about defined benefits versus defined contribution plans. But the idea that consumers and workers have to make their own investment decisions without having any education has been one of the greatest problems. And so if you're looking at social policy, something as simple as education would be a really good idea, I think.

PAT: And he does come out pretty strongly in favor of that: more responsibility for plan sponsors to provide leaflets and inserts, and more importantly maybe a session, where participants are told there are dangers in not diversifying asset holdings. There are also dangers in casting a very narrow net with respect to what you think you need in terms of retirement. The social insurance system is supposed to be about risk sharing according to Shiller and that's not what the current system is starting to look like. Worse, it's not what he thinks the system would look like if people were saving on their own with funds invested in equity apart from a federal social security program.

MARK: If social security was invested in the stock market, do you think overall the percentage of stock ownership would remain constant? Would people maybe move 401(k) money out of stocks and into bonds? Or do you think it would represent a permanent tilt toward stock ownership?

GIB: I don't know the answer. The question I want to know about is what would happen to the little old ladies and gentlemen who invested in Yahoo! at the top? And lost all of their social security and are now out begging for food because they've got no money.

EVELINA: I'm not going to give them any of my hard-earned dollars for taking such risks!

GIB: I know! (Laughter) It means social security is not about investing. It's what Pat said about risk sharing versus retirement investment. Social security has the word "social" in it ...

EVELINA: And "security".

GIB: In some ways a part of this comes from our prior discussion regarding Stocks for the Long Run, about thinking that stocks are equivalent to 15 percent bonds. The government is stupidly investing in 4 percent bonds when we can instead invest in those 15 percent bonds called stocks.

PAT: And, risklessly, increase our standard of living in the future.

GIB: Exactly!

EVELINA: The other issue is that the people in the middle years of the baby boom are going to get the least amount from social security in terms of what they paid in. So the part I like best is when any body recommends privatizing it, meaning we're going to give you some portion you're going to have to invest yourself. The whole idea of it not going to the government sounds great to me, because I'm never going to see it, and privatizing seems like a better deal. I don't know that it would matter whether I put it in bonds or stocks, but the idea that it wasn't going out of my ...

ANNE: Out of your control.

EVELINA: Out of my control forever. So there's also the aspect of privatizing not just that it's going into the stock market but also the idea you'll be able to control it yourself.

ANNE: That assumes rational decision-making.

GIB: It also assumes that they're not going to be the guys who bought Yahoo! at the top and lost all their money. And now you have old people with no money. But, hey, it was their choice!

PAT: That's the moral hazard problem that EVELINA brought up and it's a very difficult thing to deal with unless you have some model …

GIB: And that's why I shouldn't worry about that? Because the little old ladies and grandpas are going to be going crazy buying risky stocks knowing they are protected. And so they'll start investing in …

EVELINA: That's what worries me.

GIB: They'll be buying Yahoo! on margin?! (Laughter)

MARK: It would be a form of that feedback mechanism. It's okay. The government's doing it with your retirement money.

GIB: This has been so really useful for me! If I hadn't been in on this discussion I would have been an idiot and taken my privatized social security and put it in bonds. (Laughter). I would have forgotten all about moral hazard and that if I lost it I would get it back anyway. (Laughter)

EVELINA: Well, Gib, I'm not going to feed you in your old age. (Laughter)

PAT: Gib used to run a Savings and Loan years ago.

EVELINA: That's what I'm thinking of. Banking in general, not just S&Ls, the kind of risky loans they make, or credit cards making risky loans because they know they're going to get money back. I just find that to be appalling. Do we need to do it in another area? I don't think so.

MARK: This gets back again to what Gib was saying, a separation between the free market and social mindedness. Shiller, I think, is social minded and his heart is in the right place on a lot of these issues. He describes social security as sensible, and even mentions the evil of collateral damage in military strikes. He goes out of his to make these comments.

EVELINA: Well, I think Shiller is definitely a man ahead of his time. I mean he was the one who came up with those CPI futures a few years ago. They didn't go well on the CME (Chicago Mercantile Exchange) but the idea of having the option of trading the CPI index was interesting. He's certainly provocative.

GIB: The traditional academic finance people are behind market efficiency: there are no bubbles.

EVELINA: Maybe you can blame it all on his wife the psychologist. (Laughter)

PAT: Why are economists doing sociology and sociologists doing economics? It seems increasingly popular as every field wishes to take a position in other fields. Statisticians doing biology…

EVELINA: But I actually think it enhances every field. I find that whenever I'm teaching, whether it's finance or economics, that the class can only talk about that particular subject. They don't realize that everything they've learned, from English to accounting to finance fits every class they're in. The students are very narrow-minded.

GIB: How can you say that and be sympathetic to behavioral finance?

EVELINA: But I am sympathetic.

GIB: Wait, you said you didn't want me to do that when I come to your class. (Laughter) I thought you meant you wanted the class to be about just economics.

EVELINA: No, no. When I teach I like students to be aware of various subjects. Nobody seems to realize they need to bring in a broader array of material.

GIB: I see. I thought you were going the other way with that.

EVELINA: I think people are narrow-minded in not bringing in different areas.

GIB: I thought you were going with the narrow-mindedness.

EVELINA: No.

MARK: So what's the general verdict then on behavioral economics? Is this a legitimate thing? He talks about how ants choose a pile of food on the right or a pile of food on the left in making a correlation to our behavior. What's the general verdict on this?

GIB: You mean in academics?

MARK: Yes.

GIB: I think it's bigger in the year 2000 than it was in '95 and bigger in '95 than it was in '85 when Thaler was first writing about it. If I had to make a call I'd say that it's basically still fringe, and far from the mainstream at least among academics. Pat can talk about whether behavior finance lessons are being incorporated into what professional money managers are doing.

PAT: And the answer is largely no. There was recently an article in Pensions and Investments, and I'm fiercely trying to rifle through my pile here, that basically said just that. That behavioral finance as practiced in the money management field is largely non-existent.

MARK: But do these considerations appear in technical analysis? Does specific behavior get translated into the market? Shiller doesn't talk about it, but isn't technical analysis in a sense the crystallization of all these other factors? These non-fundamental factors.

GIB: I think the answer is no. Because what you have to do is take technical analysis and map it into the psychological anomalies that the behavioral people talk about: herding, anchoring, whatever. To my knowledge that's never been done. So there's not a connection. A technical analyst doesn't sit down and say okay I think there's a lot of herding out there in the market place and I'm going to translate that into some head-and-shoulders decision rules. Some of the quantitative models might decide to buy stocks when analysts revise their earnings up. And if that's the case, that's a kind of technical indicator, and there's some kind of psychological story to be told about why that's a good thing.

PAT: Story or rationalization? A lot of the technical things, Mark, involve very high frequency decisions, decisions about trading a security on a given day or hour, as opposed to some quantitative investment valuation models that might be looking at a longer-term horizon. So, there are a lot of behavioral aspects to what people do with technical analysis. These are embodied in their charts and averages, and this collected wisdom of patterns is evident in very high frequency data on stocks. But that seems a different kind of tack than what Shiller was really looking at, where the kinds of behavioral issues are a bit longer term.

MARK: People talk for instance about Nasdaq 5,000. Or they'll talk about the Dow 10,000. Or for instance the euro going under parity. These have some kind of psychological component that may go beyond at least the shortest term and might take a life on of their own and might embody a lot of those non-fundamental issues he was talking about.

PAT: There are magic numbers. A fellow a couple of years ago wrote a book "Dow 36,000" which got a lot play because it seems like such an impossibly large number. But it has a certain roundedness to it I suppose. I'm not sure. It's not clear if these things have meaning. Does the fact that the Dow is 10,000 or 20,000 really affect people's underlying investment plans, or is that just a convenient number to discuss on television. A nice round number that represents growth and progress and things like that. Does it really have an impact on the asset allocation decision of the individual?

EVELINA: Not likely now that the Dow has become a poor reflection of reality in terms of stock allocation.

PAT: It's amazing to see what gets reported now. Ten years ago the Nasdaq was one of the things that followed a report, and the Dow 30 was featured fairly prominently. That's not the way it's reported today -- much to Dow Jones' dismay.

MARK: Exactly. It's a trademark problem.

ANNE: When you talk about Dow 10,000 or Nasdaq 5,000 it seemed to me that everyone was looking for new records. A mystique was imbued into some of these numbers. They were something that people were striving for - let's go get 'em. It was almost like a psychological push so we could get to the next new level.

GIB: Those are lead articles in the press?

ANNE: Yes, the press.

GIB: The lead on the news at night is that the Dow goes through 10,000 for the first time. What does that mean?

MARK: And the most annoying thing is that the top of the news is that the Dow is up 400 points, on the cover of all the tabloids, when in percentage terms you might not be able to find it in the top 100!.

EVELINA: I think that's a real disservice that the media does, and I think it's mostly the non-financial media that comes up with that. This is just my pet peeve, but every time the index of leading indicators comes out, I see a headline in the Chicago Tribune, "The Economy's Leading Economic Gauge Blah Blah Blah," and it's a stupid meaningless indicator. (Laughter) This goes along with the Dow. It's not the nation's leading index; it's a meaningless number.

GIB: That's why you're not getting quoted in the press on that anymore!

MARK: Thepress understands drama. 400 points! And that's their story. But do people believe it? Do people believe the pictures of aliens in the supermarket lines?

EVELINA: I'm not sure. If people really believed that they'd stop spending. We've had a drop in the market from its peak, but on the other hand we have had a slowdown in consumer spending.

MARK: This is critical for behavioralism. When he talks about people being pressured into saying things that go against their common sense, like the shorter line is actually the longer line because somebody told us it was. Or perhaps even believing it. It's that oddity, that kind of a disconnect from a rational expectation that the discipline seems to be trying to measure.

GIB: The knock on behavioral finance is that it tells nice stories, but doesn't translate them into any good actions or numbers.

EVELINA: But that's where Matthew Rabin comes in.

PAT: He may be at it, but the rap generally is that there's just nothing that behavioral finance has done in terms of the tactics and the toolkit the great majority of investment managers are using. It may take years for academic ideas to filter through to practitioners and their trading decisions, but right now I think the view generally is, behavioral finance is an interesting academic curiosity as Gib pointed out, kind of a fringe idea. If enough people bring it to market and make money at it, then they will attract funds and it will have a bigger role. But, the profession is certainly not at that point now.

EVELINA: He did make the point that responses from individual investors were certainly different than responses from institutional investors. And I think institutional investors had more information, or were reacting a little bit more sensibly to information.

PAT: But they have their own unique set of pressures and that may make them less able to influence events. Even though they occupy a fairly big part of the market, they may have less ability to influence the future direction than they once had.

EVELINA: This reminds me of something Anne and I were talking about earlier this week. The whole idea of how analysts have had the optimistic forecasts of earnings and the whole conflict of interest of analysts and their reporting. We didn't really touch on that.

MARK: That was excellent. I've tried to make a living talking with these folks. But he put the order backwards. He said the first thing is analysts don't want to get in conflict with management and get excluded from important meetings, and the second thing was the conflict of financial interest. I think that is a very strong conflict. And it's not just underwriting fees, but it's that these firms actually own a body of stock in the companies as well. I think they quoted James Grant as saying that more and more analysis is becoming like sales. That analysts are more salesmen than they are analysts. I believe that's true.

GIB: I think there's evidence that supports that.

EVELINA: Just the other day a "top" Merrill Lynch analyst downgraded tech stocks that came off their peaks six months ago. Well, that was useful!

PAT: Better late than never. (Laughter)

ANNE: There was someone on CNBC who was asked the question: Do you find a conflict there? And they refused to answer the question.

GIB: Some refuse, just like Anne said, but some of them say no. They say no and I think they genuinely believe there is no conflict. But the evidence is that analysts at underwriting firms do not provide as good estimates as the people who don't have financial interests.

MARK: Companies guide the estimates. Cisco was expected to report 15 cents per share and they reported 16. And the average spread I think over time according to First Call, is about two percent spread over expectations. That's the average in excess that companies actually post. So that's the little play. It seems to me that management guides their analysts very close. If you remember, Peter Lynch discusses literally getting into the boardrooms of these companies before their public announcements and learning what it is that they wanted to tell him. It's a much more carefully orchestrated dance. I guess the real question is, are people that gullible?

EVELINA: I'm not sure it's gullibility. If you were told an analyst is covering companies and that's their job, why wouldn't you believe it? Unless you follow the whole investment market very closely, you wouldn't know that companies guide analysts so closely.

MARK: Well there is a bit of a sham to it all, a complacency in the system which I think is seen when companies actually do disappoint. How can a giant like Nokia fall 35 percent in one day? One, everyone was in shock that the earnings dance didn't go, and two, institutions had to unwind their portfolios. Shiller doesn't talk about this when he discusses UAL in '89.In those days there was a group who called themselves arbitrageurs, and they invested in companies that were whispered as takeover targets. Arbitraguers were highly leveraged and when one of their bets went bust, and UAL was a very pricey stock at the time, they had to unwind positions which led to the big crash that day, I guess I'm digressing a bit.

GIB: No! That's exactly what should have happened according to efficient markets. That when the whispers didn't come true, that's exactly how the markets should have worked.

PAT: But it's the interlocking piece. In other words, because their bet went bad in one part of their portfolio, they had to take hits in other parts. Just like Long Term Capital Management had to do. Their bets were sound in a lot of cases but they didn't have the money to stay with them, and secondly when they had to start covering things, they had to sell assets at losses, and that winds up hurting everybody else. In other words, fundamentally sound things have to be dumped to raise cash. That's the sense that one failure in a part of the market can propagate to other parts.

MARK: Why didn't he include that in some aspect of his argument?

PAT: That's a great point: the whole business about what analysts do. There's a great article in July's Bloomberg Magazine called "Bad Advice." They interview people who used to be analysts, and they fess up to what exactly it was they did. It's quite a damaging article, exposing their relationship with investment banking and how that drives things. Gib's right, a lot of them will say no, but in reality a lot of them said yes and when you listen to the stories you begin to wonder. All firms aren't the same, but there is a sense some analysts are in a conspiracy to provide positive earnings reports which get propagated to the story-happy media to once again pump up the demand and interest in these companies.

GIB: These days, a company beats the estimate and they still get hammered because they didn't meet the whisper. But people know the game. They know that the estimates are jiggered. You tell me that Cisco beat the consensus by 5 cents, but what was the whisper number? The whisper number is a fuzzy thing itself.

MARK: And that's generated on the Internet. In chat rooms, people will talk about the whisper numbers.

EVELINA: But I think that some of these chat rooms are not reliable.

PAT: No, they're fronts for those running rabbit schemes and a half dozen other classic con games that are now much easier to play with more anonymity and lower cost using the Internet. You don't run the risk of mail fraud because you do it all electronically.

EVELINA: Anne and I participated in a message board. And I won't name the website. Maybe I was just overly sensitive, but I was so offended by the comments that some people made. They thought that because they are anonymous they could be rude. And I think if they're going to be that way on an economics message board, they could out and out lie and con people where money's really made. I think those things are very dangerous. And even if some have reputations of being better than other message boards, there is still a problem.

ANNE: But there's no way to screen them.

PAT: And there's an allure for many people that are interested in frequent trading--the sense that they have information other people don't. So if you're plugged into this network you have so much more confidence even though it seems completely misplaced. There is also the sense of self-importance, a chance in the sun to make these stock market prognostications. The brokerages have hilarious commercials on TV where they poke fun at some of these people. Some people are paying attention to chat boards; I don't think that's a big problem. But it's a little problem and if you believe Shiller's argument that basically it's a lot of little issues that get combined and feedback on one another, you can see why there are problems in the market.

EVELINA: I think that's one of his strongest points. When the market first started gaining so rapidly and people were trying to figure out what it was, everybody could come up with one reason but that wasn't it. But it is a combination of all these reasons that go through the feedback loop. It would be interesting if it did unwind in a similar pattern.

MARK: He mentioned books that were optimistic on the market and that were bestsellers for so many weeks. Could a book like this sell? Could a book that actually suggests sobriety be a successful book that people talk about?

EVELINA: I think this one was a bestseller, wasn't it for a couple of weeks?

ANNE: I think so.

GIB: There is sobriety in A Random Walk Down Wall Street by (Burton) Malkiel. You can't beat the market.

MARK: Do you think Shiller could be successful, help bring the market back?

PAT: The difference between a bestseller and something people pay attention to.

EVELINA: Yes. It also depends whether the bubble crashes. If the bubble crashes then he would be right. If the bubble doesn't crash in the next five years than he's just another person who predicted it ten years ago.

PAT: He'll look even more right in his own words.

MARK: He gives himself a clause. It was in parenthesis which I thought was a cop out, but he says that the market doesn't have to come down in ten years, may be not even in 20 years, and it doesn't mean I'm wrong.

PAT: It's just more important that we deal with the implications of a bubble today. I think those are his words exactly. He gives himself an out, he can be right either way.

EVELINA: Well, he wouldn't make it in the real world. Right, Pat? When we make forecasts in the real world, they have to be right in the next six months.

PAT: Or, unfortunately, tomorrow.

GIB: To Shiller's credit, his original article came out two years ago. Of course if he were living in the real investment world he would have been fired.

PAT: If he were managing a fund that was completely out of stocks he would have lost his clients.

GIB: He would be of those guys needing social security!

EVELINA: That is secured! (Laughter)

GIB: I'd be passing him on the street begging for food.

EVELINA: Give him a quarter. He does mention, and I got a kick out of this, how the Nobel Prize winner, I forget who it was …

MARK: Merton Miller?

EVELINA: ... that lost the money in the Long Term hedge fund.

MARK: I think he called him an eminent economist who lost his shirt.

PAT: It's Markowitz, I think he's talking about.

GIB: No, it wasn't Markowitz. It was Long Term Capital; Miller?

PAT: There were plenty of MIT PhDs at Long Term Capital.

MARK: Robert Merton!

ALL: Robert Merton!

MARK: (reading) "A financial theorist who was later to win the Nobel Prize and to also suffer a major financial loss."

GIB: But he also talks about Merton Miller from the U of C.

EVELINA: Who just died recently.

GIB: Who was a big supporter of efficient markets.

PAT: Robert Merton was the guy who got killed at Long Term Capital.

EVELINA: But at least he has his Nobel Prize winnings to fall back on.

ANNE: I don't think he lives in Greenwich any more.

GIB: Merriwether doesn't. They took Merriwether's house, I think.

PAT: They're all starting new funds. Merriwether is getting ready to start a new fund. A lot of those guys are filtering back in because hedge fund investments are very hot right now.

ANNE: And they're still in Greenwich.

MARK: Michael Milken came back too. It's hard to be discredited on Wall Street. In fact, if you are discredited that's almost to your credit it seems. (Laughter)

PAT: To be a colossal winner you must have been a colossal loser.

EVELINA: Well it's all name recognition. If you get your name in the press, you're a winner.

ANNE: That's right. Back to the media.

EVELINA: Well, do we have any final words of wisdom after two hours?

GIB: I just got Andrew Shleifer's new book that was reviewed last week in the New York Times, "Inefficient Markets". Mark it for future reading.

EVELINA: Didn't you have one on speculative bubbles you were reading?

GIB: The New York Review of Books, when it reviewed Shiller's article also mentioned related books including "Devil Take the Hindmost," which I've started reading. It's a history of bubbles. It starts with tulips, then does the South Sea bubble, and so on. The similarities to the current situation are remarkable. It makes for fascinating reading. I had forgotten, actually, and I may be confused since I'm reading both books, the point Mark made earlier about the newspapers and the bubbles, and I couldn't actually remember if it was in Shiller or this other book.

ANNE: It's in Shiller.

GIB: But I think it's also in this other book; how the frenzy is fanned by the newspapers and the media.

EVELINA: The self-fulfilling prophecy. With more news available 24 hours a day, via the Internet or even news shows on TV, you get more news all the time.

This concludes our two-part discussion on Robert Shiller's bestselling book, "Irrational Exuberance." Time wouldn't allow us to cover all of Shiller's main points. While we didn't always agree with his conclusions, I think we all came away believing the book to be thought-provoking and would clearly recommend it to others interested in the behavioral aspects of financial markets and investors. We are interested in feedback to our roundtable discussion. Send any comments to Etainer@Econoday.com and I will direct the questions/comments to all roundtable participants. (Evelina Tainer)