Nigel Warburton: So, if we bring psychology back into economics with the current crisis, what particular light would psychology shed on that? I mean you talked about people’s optimism is it that there’s a kind of herd mentality and the markets mirror that? Or is something else going on?
Robert Shiller: There’s a lot going on. It turns out that the human mind is very complicated. Economic theory likes to reduce human behaviour to a canonical form, the structure has been, ever since Samuelson wrote this a half century ago, that people want to maximise their consumption. All they want to do is consume goods; they don’t care about anyone else. There’s neither benevolence nor malevolence. All they care about is eating or getting goods and they want to smooth it, they described it in terms of so-called utility functions through their lifetime and that’s it. That is such an elegant simple model, but it’s too simple and if you look at what psychology shows, the mind is the product of human evolution and it has lots of different patterns of behaviour. The discoveries that psychologists make to economics are manifold.