Contributor(s): Professor Robert J. Shiller | Bubbles in the stock market and the housing market are the cause of a financial crisis that is wreaking havoc around the world. The bubbles in turn are caused, at their core, by popular misunderstandings. This contradicts the 'rational expectations' view of the economy that has guided much economic theorizing. In dealing with this crisis in the short run, some kind of bailout of injured parties is necessary to prevent damage to the social fabric. In the long run, we can help mitigate such crises by improving the financial information infrastructure, by expanding market coverage of important risks, and introducing new retail financial products. Robert J. Shiller is the Arthur M. Okun Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and Professor of Finance and Fellow at the International Center for Finance, Yale School of Management.