耶鲁大学金融市场英文文本FinancialMarketsLecture03Transcript.docx

耶鲁大学金融市场英文文本FinancialMarketsLecture03Transcript.docx

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耶鲁大学金融市场英文文本FinancialMarketsLecture03Transcript

FinancialMarkets:

Lecture3Transcript

ProfessorRobertShiller:

IthoughtIwouldjustrememberacoupleofhighlightsfromthefirsttwolecturestoconsolidatewhatwesaidthen.Inthefirstlecture,Italkedaboutalotofthings,butonethemethatcomestomymindisthethemeofthemoralpurposeandmissionofthefinancecommunity.Wetalkedaboutthesensethat,Ithink,youngpeoplehaveasortofprejudiceagainstthefieldandtheythinkthatfinanceisafieldthatyougointoifyoureallyvaluemoneyratherthanpeople.Iwanttoreiterateagainthatthat'snotthewayIviewthefieldatall.Iwasjustyesterday--IgaveatalkinMontrealattheCaissedeDépôt,etPlacementduQuébec,whichisthebigwealthmanagementfundfortheProvinceofQuebec.ImetalotofpeoplethereandIneveroncegottheideathatanyonetherewasevilorgrasping.Ithinktheyhaveamoralpurpose,whichistopreservethelivelihoodsofthepeopleoftheProvinceofQuebec.Yougetaverydifferentviewofthingswhenyoumeetthepeople.Ithinkourentertainmentindustrylikestomakemoviesaboutpeopleinfinance,buttheyareinevitablyportrayedasevilandIdon'tknowwhythatis.Idon'tthinktherehaseverbeenamajormotionpictureaboutafinancialpersonwhoendedupaphilanthropist.Whyisthat?

Ijustdon't--peopledon'tlike--peoplewouldratherhate--Idon'tknowwhyit'ssomething--itwouldn'tbeagoodmovietheme,wouldit?

Anyway,youhavetoovercomethese--youhavetothinkthatifyougointothefieldyouwouldprobably--Ifyou'resuccessful--youwouldprobablyendupasaphilanthropist;butnomoviewillbemadeaboutyourlifeandyoumayencounterhostilitythewholeway.It'sespeciallytruerightnowwiththesubprimecrisis.Peopleareblamingthefinancialcommunityforourtroublesnow.Itistruethatwe'reseeingsomepeoplethrownoutoftheirhouses,insomecases,becauseofsomeratherquestionablefinancialpracticesthatgotpeopleintomortgagesthattheyshouldn'thavegotteninto.Butoverall,Ithinkthatthepeopleinthisfieldaregoodpeople.

Inthelastlecture,Italkedabout–Inthesecondlecture,Italkedaboutthepoolingofrisksandthebasicthemeofthatlecturewasthatwenowhaveamathematicaltheory,probabilitytheory.Whenyoulookatthistheory,yourealizethatitsuggestsaveryimportanttechnologyforimprovinghumanwelfareandthatis:

byspreadingrisks.Theeconomy,andtechnology,andtheweather,andallsortsoffactorscreaterisks.But,therealtechnologyis--thetechnologythatworkstoeliminaterisksistospreadthemout,topoolthem,tosharethemamongmanydifferentpeople.So,theideathattheoristssuggest--anditmaybeunreachable--buttheperfectfinancialsystemwouldhaveallofourriskspooledcompletely.Thatis,nobodysuffersalone.Ifanythinghappenstomeinmylivelihood,thenit'sspreadoutovereverybodyandeverybodymeansthewholeworld.Whateverhappenstome,whenit'sspreadoutoversixbillionpluspeople,itendsupdividedbysixbillionanditbecomesunobservable.Itbecomessosmallthatit'smeaninglessandthat'stheideal.That'swhat,inprinciple,wecandoandwhatIthinkisthemostimportantconceptinfinance--thisconceptofriskpooling.Weliveinaworldwherepeoplesufferallkindsofmisfortunes.Ofcourse,wecantrytogetridofthesemisfortunes.Wecandoresearchondiseasepreventionandweathermodificationandglobalwarming.Wecandoresearchonallthesethings,butthere'sanothertechnology,whichisextremelyimportant.Thatis,evenleavingtherisksastheyareandjustsharingthembetter.So,I'llbetalkingmoreaboutthis.

Theproblemisthatwhiletheprincipleofrisk-sharingisverysimpleandobviousthepracticerequirestechnology.It'sjustlikeyoucouldsaysomeoftheprinciplesofmechanicsareveryobvious,buttomakeanenginethatoperatesintermsofthoseprinciplesisnotobvious.

WhatIwanttotalktodayaboutiswhatIcalltechnologyinfinance.I'llpresentmyviewofthesituation,butmaybeit'saratheridiosyncraticviewthatIhave.But,Ithink--It'snotsomuchidiosyncratic,butit'sadifferentemphasisthatIputforth.WhatIwanttotalk–Therearereallythreethemestotoday'slecture:

arisktheme,aframingtheme,andaninventiontheme.Iwanttogooverthehistoryofriskmanagementandthroughthesethreethemes.

Thefirstoneis,Imightsay,along-termrisktheme.Letmegooverthesethreethemes.Thelong-termrisksaredominantinourlives.Bythat,Imeanthateveryone'slifeisasequenceofshocksthataccumulateoveryourlife.I'mtalkingabouteconomicshocks.Whenyoustartoutyoung--We'reunequalatbirth,ofcourse,becauseofourparentsandtheadvantageswehave,butrelativelyequalatayoungage.Aseachyeargoesby,youaccumulateeconomicshocks,shockstoyourhumancapital,shockstowhatyouownasyougetolder.Youstart--Yourhumancapitalisyourabilitytodothingsandyourknowledge,whichiswhatyouhavetosellinthemarketplace.Asyougetolder,yourhumancapitalevolvesandithasitsupsanddownsasyouageandyoustartswitchingfromhumancapitaltootherformsofcapital.Inotherwords,youstartsavingandyouownstocksandbonds,andrealestate,andotherthings.Eachofthesesuffersasequenceofshocksthatcumulateoveryourlifetime,soinequalitygetsworseandworseaspeopleage.Itisatitsworstafterretirementwhenyouarenolonger--you'veexhaustedyourhumancapitalandyou'relivingoffofalltheaccumulatedphysicalcapital.That'sthelifecyclestory.

There'sgreatinequalityamongtheelderlyandthat'saproblem.Someofthemarelivingverybadlyandothersarelivingwithgreatcomfort.That'swhatfinanceisabout.It'sreallyaboutpeople.Wedon'tcareatallaboutcorporations--weshouldmakethatclear--exceptastheycontributetoindividualwelfare.Idon'tcarewhathappenstoCitigrouporIBM,exceptforthefactthatthereareallthosestockholdersoutthereandthey'reofalldifferentsituations.Someofthemareabsolutelydependentontheirholdingofthesestocks.That'swhatwehavetothinkaboutandit'salong-termproblem.

Theproblemwithlong-termrisks,also,isthatanythingthatwedotomitigatetheseriskscreatesmoralhazard.That'sanotherfundamentalthemeoffinance.Whatismoralhazard?

That'satermthatfirstenteredtheEnglishlanguagesometimeinthemid-nineteenthcentury,butofcoursetheconceptgoesearlier.Moralhazardoccurswhenariskmanagementinstitutionincentivizesyoutodobadbehavior--toshowbadbehavior.Theclassicexampleofmoralhazardiswithfireinsurance.IgetfireinsuranceonmyhouseandsoIbehavebadly:

Ideliberatelyburnthehousedowntocollectonmyinsurance.That'smoralhazard;butit'snotuniquetothat,it'sallovertheplace.Whenyoumanagerisks,youcreatemoralhazard.That'swhyweneedinventionandtheoryinfinancetominimizethat.

Thesecondthemeforthislectureisaboutframing.BythatImeanpsychologicalframing,andtherearemanypsychologistswhotalkaboutthis,butnotablyDanielKahnemanandAmosTversky."Psychologicalframing"meansthetendencyforpeopletoviewthingsinadistortedwaydependingonhowthey'represented.IfIpresentthingsinoneframe,thenyouwouldreactoneway.IfIpresentthesamethinginanothercontextorbackgroundorenvironment,thenyoureactverydifferently.Iwillexpandonthisinaminute.

Thethirdthemeistheinventionthemeofthislecture.Thatis--Imentionedthisbefore,butIwanttoexpandonitinthislecture--thatthehistoryoffinanceisthehistoryofinventionjustasmuchasitisinotherfields,notablyengineering.TheideathatIwanttodevelopisthatthehistoryoffinanceisahistoryofdiscreteinventions.Non-obviousideaswereconceivedoftosolvetheseproblemsoflong-termrisksandtogetaroundthepsychologicalbarriersimposedbyframingbiasesandpsychologicalbiases,inordertoallowpeopletoactuallymanagetheriskandtogetaroundmoralhazard.It'sadifficultthingtodothesethingsandthat'swhyweneedinvention.

Anotherthingisthat,whenonceaninventionismade,ittendstobecopiedallovertheworld.So,thehistoryoffinanceislargelyahistoryofcopying.That'swhatyouhavetodo.Youmayhavetoadaptittoaparticularenvironment,butbasicallyitiscopyingotherideas.Somepeopleinless-developedcountriesfeeluncomfortablethattheyarejustslavishlycopyingother,moreadvancedcountries;but,theyhavetorecognizethatiswhateverybodyhasbeendoingallalong.Wecopythegoodideasandintheprocessweadjustthemandmakethemalittlebitbetter.Newideascancomefromanywhere.Thebasicthing,though,isthateverycountryhastotaketheinsightsthathavebeendevelopedaroundtheworld.

Letmecomebacknow--Iwanttogothroughthesethreethemes.Letmestartwiththelong-termrisktheme.Iwanttostartwithanarticle,which--mentionanarticlebyBackus,Kydland,andKehoe--actuallyBackus,Kehoe,andKydland,threeeconomists[DavidK.Backus,PatrickJ.KehoeandFinnE.Kydland,"InternationalRealBusinessCycles,"JournalofPoliticalEconomy,100（4）:

745-775,August1992].Oneofthese,thelastofthethree,FinnKydland,wontheNobelPrizeafewyearsago.Inthisarticle,theytalkedaboutthecorrelationofconsumptionaroundtheworld.Whatisconsumption?

It'stheamountthatpeoplespendonconsumptiongoods,thingsthatyoubuyforyourcurrentuse,likefood,shelter,clothing,etc.Everycountrycomputesanestimateofhowmuchisspenteachyearonconsumptionbythepeoplewholiveinthec