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The New Financial Order: Risk in the 21st Century | 
 enlarge | Author: Robert J. Shiller
Publisher: Princeton University Press
Category: Book
List Price: $26.95
Buy New: $9.08
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Rating:  22 reviews
Media: Paperback
Pages: 384
Number Of Items: 1
Shipping Weight (lbs): 1.2
Dimensions (in): 9 x 5.7 x 1.1
ISBN: 0691120110
Dewey Decimal Number: 368
EAN: 9780691120119
Publication Date: July 6, 2004
Availability: Usually ships in 1-2 business days
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| • | ISBN13: 9780691120119 | | • | Condition: NEW | | • | Notes: Brand New from Publisher. No Remainder Mark. |
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Product Description
In his best-selling Irrational Exuberance, Robert Shiller cautioned that society's obsession with the stock market was fueling the volatility that has since made a roller coaster of the financial system. Less noted was Shiller's admonition that our infatuation with the stock market distracts us from more durable economic prospects. These lie in the hidden potential of real assets, such as income from our livelihoods and homes. But these ''ordinary riches,'' so fundamental to our well-being, are increasingly exposed to the pervasive risks of a rapidly changing global economy. This compelling and important new book presents a fresh vision for hedging risk and securing our economic future. Shiller describes six fundamental ideas for using modern information technology and advanced financial theory to temper basic risks that have been ignored by risk management institutions--risks to the value of our jobs and our homes, to the vitality of our communities, and to the very stability of national economies. Informed by a comprehensive risk information database, this new financial order would include global markets for trading risks and exploiting myriad new financial opportunities, from inequality insurance to intergenerational social security. Just as developments in insuring risks to life, health, and catastrophe have given us a quality of life unimaginable a century ago, so Shiller's plan for securing crucial assets promises to substantially enrich our condition. Once again providing an enormous service, Shiller gives us a powerful means to convert our ordinary riches into a level of economic security, equity, and growth never before seen. And once again, what Robert Shiller says should be read and heeded by anyone with a stake in the economy.
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| Customer Reviews:
Showing reviews 1-5 of 22
 You had me at "Democratization of finance" December 1, 2009
Osman Nal (Houston, Texas USA)
0 out of 1 found this review helpful
This book deals with risk. It also proposes a lot of policy recommendations for the future. The author mentions of a term called the "democratization of finance" in which he means the tools of finance becoming more readily available to anybody rather than a small group of capitalists.
The book puts it clearly that progress and innovation requires some risk taking to be done as the future is uncertain. It turns out that chances play a big role besides the entrepreneurial and management skills. Considering that 50% of new businesses fail 5 years after their inceptions, the author sets the ambitious question: "Is it possible to design financial contracts to create proper incentives for risk taking?"
The author argues that risks are even higher today compared with their past history as the information technology makes it a game with "winner takes it all effect". Consider the TV that made movie stars and singers like idols. But the author also proposes that the same information technology can be used to reduce the risks significantly. We have for example auctions that make it possible to sell virtually any stuff through you personal computer. It is also the same information technology that will make it possible presumably to diversify risk among countries.
Dr. Shiller believes in financial tools as he makes an analogy with theoretical physics. At a seminar I still remember him talking about the similarities between financial technology and nuclear technology. Both are very intricate and dangerous to controlbut very beneficial for the society at the same time. Yet with the advent of stronger computers and faster dissemination of information around the world, finance too will be conquered and be used for the good of humankind.
Finally information technology can also help us better put the psychological component into perspective. No mainstream finance textbook used to have the word "bubble" in it for example. Now there is bigger appreciation of the existence of "animal spirits" if you will in play. Nobel Prize winner Kahneman talks about "framing" and other behavioral concepts. Apparently financial players and investors have their emotional sides next to their rational sides.
Dr. Shiller then elaborates on 6 new ideas for a new financial order. The ideas draw the frontiers and the limits of financial engineering as they are. Let me list them quickly:
1. Insurance for livelihoods and home values
2. Trading the risks in Macro-markets
3. Reducing the risks of hardship and bankruptcy through income linked loans (for individuals and countries as well)
4. Protecting the distribution of income through inequality insurance
5. Sharing risks between young and old through inter-generational social security
6. International agreements for risk control
The book concludes with lessons historically drawn from major financial inventions. We all know very well that financial crises are good opportunities for reforming financial institutions and rules of the game.
I highly recommend this book for the practitioners, academics and students of finance.
 Worth a read, though not quite as inspiring as his other works September 3, 2009
1000Books (NY,NY)
Relative to Irrational Exuberance, which received much acclaim, The New Financial Order was not given the same sort of thumbs up. I'm a bit biased having seen him speak and thinking that many of his ways of looking at the world are quite unique. A huge fan of Shiller, I was taken aback to find that the reviews of the book were very mixed. Of course i had to read it and have my own say.
Shiller's book which proposes a "New Financial Order" does in fact provide his preliminary thoughts on how that should look. He discusses several newer financial instruments with which he has significant involvement, including his housing indices, the user of swaps as climate hedging instruments, and the IMF's attempts to get developing countries to work harder to implement the use of such derivative instruments.
Where I think the book looses its steam is in the writing. Shiller's first book was really artful in its ability to coherently and orderly express irrational exuberance. In this regard, it was a single phenomenon that was introduced and explicated using examples throughout history.
This particular book attempts to show a future of risk management that is much broader in scope. As a result, the examples are from a multitude of places to the point of seeming almost random and off point. At once he is discussing derivative, swaps, and futures in the context of climate of multinationals and unemployment. At the same time he is showing historically what has existed in those nations. The transitions are just not smooth.
The meat of what he is saying was fantastic. It truly is the case that risk is evolving and the world is innovating to a place where the sheer number of identifiable risks that exist have increased dramatically. It definitively is the case that data allows us to measure and identify these risks in ways that never before were available. And Shiller absolutely points out an important change in the advent of financial instruments that have been created to meet these demands. He even begins to show methods in which capitalism to create markets which would improve income distribution.
However, he does it in a manner that is not nearly as organized as his first book. I think this may be why the critiques of the book miss both his major points and why this book is actually unique for this time. I have to doc it points for style and suggest those that are avid fans to keep his main points in mind and dig through the pages to find the gems that Shiller is attempting to articulate.
Extremely complex in its theory, but well worth the effort December 28, 2007
D. Anthony (Pennsylvania, USA)
0 out of 1 found this review helpful
Robert J. Shiller proposes the use of mass insurance policies to cure many of society's ills. Think he's crazy? Read the book and judge for yourself. The author makes alot more sense than you might think at first blush.
 The problem is ambiguity and uncertainty,not risk alone September 8, 2005
Michael Emmett Brady (Bellflower, California ,United States)
13 out of 24 found this review helpful
The major problem with this book is Shiller's basic misconception of what the major problem is concerning decision making about the future ,given the incomplete amount of relevant information available in the past and the present,based on what D.Ellsberg called ambiguous probabilities, J M Keynes called probabilities with low weight(uncertainty),and Benoit Mandelbrot called wild risk(as opposed to the mild risk of the normal probability distribution).Shiller bases his understanding on the "new"behavioral economics associated with the work of Tversky,Kahneman,Thaler,etc.This kind of approach emphasizes not the major problems of ambiguity,uncertainty,or wild risk of Ellsberg,Keynes,and Mandelbrot,but relatively mild problems associated with the Allais Paradox(certainty,reflection,translation,and preference reversal effects plus other assorted anomalies).The problem is that the Tversky-Kahneman approach ,and other associated approaches allied with them, are based fundamentally on the view that the normal distribution is the correct distribution to use for educated,rational decision makers.The problem ,then,is that decision makers in general are not rational;they are irrational and uneducated decision makers ,who allow their emotions,combined with their hopes and fears,to influence their decision making .All the anomalous behavior can be traced to the basic irrationality and ignorance of decision makers,who supposedly resort to all kinds of heuristic shortcuts because they have not mastered the fields of statistics and probability correctly.The position of Ellsberg,Keynes,and Mandelbrot is completely different.The decision maker is rational,but must "rely" on probabilities that he knows are unreliable,vague,ambiguous,unclear,and uncertain.In such a world the attempt to gain additional information,as in the stock market,leads to herd,crowd,and cascade effects as each individual decision maker attempts to obtain a little, additional amount of relevant information from other sources that he feels are better informed.Thus,it is the ambiguity or uncertainty of the future that leads to the creation of bubbles,manias,panics,and crashes.These events have little to do with the Tversky-Kahneman approach.The normal probability distribution is completely worthless as a guide to action in the stock market and other financial markets in the face of ambiguity ,uncertainty,or wild risk.In his preface(pp.ix-x),Shiller claims that"...economic thinkers have been limited by the state of relevant risk management principles of their day".Shiller claims that Keynes did not have command of such risk management ideas.The fact is that Keynes,Ellsberg,and Mandelbrot have forgotten more about these ideas than Shiller will ever know.All seven of Shiller's new types of markets and new types of insurance totally ignore the fundamental problem of ambiguity/uncertainty.They are put forth in the misbelief that the kind of decision making problems examined by Tversky-Kanheman are the main explanation for the boom-bust nature of financial markets , the volatility that results,and the unstable nature of such markets in a capitalist system.Shiller needs to completely rewrite this book and base it on a foundation of Keynes,Ellsberg,and Mandelbrot.
Good for a Laugh August 6, 2005
Jennifer Bell (Montreal, QC Canada)
11 out of 26 found this review helpful
What an odd book. Shiller reviews the up-sides of multiple forms of insurance without a thought to the down-sides. How much would being insured for every possible eventuality cost the user?
At times, I tended to agree with the reviewer quoted on the back cover -- 'pleasantly utiopian'. At other times, I more agreed with my father, who said, after I read aloud a passage about the draconian surveilance measures needed to enforce some of the insurance contracts Shiller advocates: 'He's a very bad man.'
Showing reviews 1-5 of 22
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