An article in The New York Times by Nobel Laureate Robert Shiller argues, “The more we learn about how people really think, the more we must rethink economic theory.”

Shiller highlights the findings of two new studies that show how people “systematically change their beliefs in thinking about the financial future.” The authors of the 2018 paper, he reports, “attribute some of the economic pain that occurred after the 2008 financial crisis to a change in beliefs that may still be playing a role 10 years later.” They argue that after such an event, statistical techniques “show a sudden and persistent increase in the probability that such an event will occur again.” But continuing to worry that another crisis will occur, Shiller writes, can impede economy growth.

“These scholars are correct,” Shiller writes, “but the situation, in my view, is even worse than they imply. That’s because there is evidence from behavioral economics that people are not entirely logical, and do not actually rely fully on logic or standard statistical techniques.” Shiller notes that this concept echoes that expressed in a new book titled, “A Crisis of Beliefs” (Princeton University Press, 2018), which argues that people believe that recent trends will continue, “whatever they may be, and then, when things shift, they change their expectations again.”

More broadly, Shiller says, “fundamental beliefs about the economy change through time,” noting that the strong performance in the U.S. stock market since 2009 and in the housing market since 2012 are “a result of a newly emergent belief system, reinforced not just by presidential statements or even by tax cuts but by a psychological dynamic that operates according to well-defined psychological principles based, erroneously, on the belief that past growth in market prices is strong positive evidence for more growth in the near future.”