Most things I read about the stock market usually result in me going cross-eyed rather quickly. It’s a combination of two things, a general lack of understanding regarding the complicated world of stock trading and a strong lack of interest. It affects us all, sure, but that doesn’t mean I have to like it.

Well here’s one for those who feel similar sentiments to me, a Gawker article using the recent market plunge as a starting point for their piece. Their expert on the matter is a rather respected man called Robert Shiller, a Nobel Prize-winning economist who writes a New York Times column. Here are some excerpts from that Gawker article:

His fundamental theory could, perhaps, be summed up as: “People are stupid and irrational sometimes, and finance is run by people. Therefore, finance and the stock market and the business world and will also be stupid sometimes. No big surprise”…

Shiller explored the widespread theory that the current teetering of the global stock markets may be a warning sign of global “deflation,” which could plunge the world into an era of economic stagnation…Is this the case? Shiller’s take: Who the fuck knows? What we do know is that if people think this is the case, it can easily become a self-fulfilling prophecy.

Here’s what Shiller himself had to say in the New York Times:

Theories that seem to explain the stock market’s direction often work like this: First, they cause investors to take action that propels prices even further in the same direction. These narratives can affect people’s spending behaviour, too, in turn affecting corporate profit margins, and so on. Sometimes such feedback loops continue for years.

So does the secret then lie in understanding human nature more than the intricacies of the stock market? I don’t really think that makes it any simpler, we’re a rather complicated bunch ourselves.

[sources:gawker&newyorktimes]