According to Nobel laureate economist Robert J. Shiller, mainstream economists’ faith in efficient markets is wildly misguided. Shiller argues that financial markets are rife with speculation, meaning that investors often drive prices far beyond their fair value. In Irrational Exuberance, Shiller contends that speculative bubbles pervade financial markets and outlines his theory of the structural, cultural, and psychological considerations that create and sustain these bubbles.

In this guide, we’ll first examine Shiller’s arguments that speculative bubbles have formed in three key US financial markets: the stock market, the housing market, and the bond market. Next, we’ll discuss Shiller’s theory that irrational exuberance—unwarranted optimism driven by structural, cultural, and psychological factors—is the driving force behind these bubbles. To conclude, we’ll examine Shiller’s recommendations to financial leaders and the general public for mitigating these bubbles.