A recent article in The Economist magazine divided economists into “poets” and “plumbers,” the former articulating radical new visions of the field and the latter patiently installing the infrastructure needed to implement those visions. Bob Shiller is the rare economist who is both poet and plumber. Not only that, he is also entrepreneur and pundit. His work has fundamentally changed the theory, econometrics, practice, and popular understanding of finance.

Starting in the late 1970's, Bob boldly challenged the prevailing orthodoxy of financial economics. He showed that financial asset prices often deviate substantially from the levels predicted by simple efficient-markets models, and he developed new empirical methods to measure these price deviations. In the early 1980's, Bob went on to argue that economists need a much more detailed understanding of investor psychology if they are to understand asset price movements. He pioneered the emerging field of behavioral economics and its most successful branch, behavioral finance. At the end of the century, Bob articulated his vision of finance in a wildly successful popular book, Irrational Exuberance. He became so well known that TIAA-CREF asked him to appear in a series of full-page advertisements in the popular press.

Although Bob does not believe that investors use financial markets in a perfectly rational manner, he does believe that these markets offer great possibilities to improve the human condition. His recent work asks how existing financial markets can be used, and new financial markets can be designed, to improve the sharing of risks across groups of people in different regions, countries, and occupations. He has explored risk-sharing possibilities not only in journal articles, but also in business ventures and a 2003 book, The New Financial Order: Risk in the 21st Century.

It was a great privilege for me to interview Bob Shiller. Bob's arrival at Yale when I was a Ph.D. student there set the course of my career as an economist. Bob reinvigorated the Yale tradition of macroeconomics, with its emphasis on the central role of financial markets in the macroeconomy and its idealism about the possibility of improving macroeconomic outcomes. First as a thesis adviser, then as a coauthor, mentor, and friend, Bob showed me how to contribute to this tradition.

The interview took place at the 2003 annual meetings of the Allied Social Science Associations in Washington, D.C. We met in a hotel suite, ate a room service meal, and had the enjoyable conversation that is reproduced below.

This book is an ambitious effort by three well-known and well-respected scholars to fill an acknowledged void in the literature—a text covering the burgeoning field of empirical finance. As the authors note in the preface, there are several excellent books covering financial theory at a level suitable for a Ph.D. class or as a reference for academics and practitioners, but there is little or nothing similar that covers econometric methods and applications. Perhaps the closest existing text is the recent addition to the Wiley Series in Financial and Quantitative Analysis. written by Cuthbertson (1996). The major difference between the books is that Cuthbertson focuses exclusively on asset pricing in the stock, bond, and foreign exchange markets, whereas Campbell, Lo, and MacKinlay (henceforth CLM) consider empirical applications throughout the field of finance, including corporate finance, derivatives markets, and market microstructure. The level of anticipation preceding publication can be partly measured by the fact that at least three reviews (including this one) have appeared since the book arrived. Moreover, in their reviews, both Harvey (1998) and Tiso (1998) comment on the need for such a text, a sentiment that has been echoed by numerous finance academics.