The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Biology of Financial Market Instability

  • John Coates
  • Lionel Page
Reference work entry


Research in the biology of risk taking is today helping solve a problem identified in 1981 by Robert Shiller. In an influential article criticising the efficient markets hypothesis, Shiller demonstrated that ‘measures of stock price volatility over the past century appear to be far too high – five to thirteen times too high – to be attributed to new information about future real dividends’. His paper has been debated ever since, but if it was pointing out a real phenomenon in 1981 then that point could be made even more forcefully today as the frequency and severity of market bubbles and crashes – in particular the housing bubble of 2002–07 and the credit crisis of 2008–09 – has only increased. How could biology help account for volatility of this magnitude and destructiveness?


Biology Bubbles Crashes Credit crisis Crises Efficient market hypothesis Financial Neuroeconomics Preferences Risk preferences 

JEL Classifications

D84 D87 E3 G1 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • John Coates
    • 1
  • Lionel Page
    • 1
  1. 1.