The Importance of Risk in Stock Markets

Dick Thaler: Do bubbles exist? How do we define bubbles? Well, I think it's hard to say. He shows a graph of house prices over a very long period of time in the US. There are hints in that graph that prices seem to have diverged from a level that had existed for a very long time. It was this because of irrational exuberance, Alan Greenspan's phrase. But let me present another example, which is amusing at least. This is not like the market anticipating some boom in the Caribbean - this is just a mistake.