BUSINESSWEEK ONLINE : AUGUST 30, 1999 ISSUE
COVER STORY -- 21 IDEAS FOR THE 21ST CENTURY

Q&A: An Economist's Plan for Minimizing Risk


Robert J. Shiller is an economics professor at Yale University and author of a 1993 book, Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks. He is an expert on devising hedges to protect people from events beyond their control that might affect their chosen careers, neighborhoods, or even the countries in which they live. He shared his thoughts with Peter Coy, an associate economics editor at Business Week.

Q: What is the idea of "macro markets"?
A:
This is expanding insights we've gotten from other areas of finance. People have learned to diversify their portfolios. But they don't diversify in the most important areas of their lives, like their jobs and their houses. There's no reason for me to bear the large risks that are associated with these things.

It will encourage people to take risks, because the risks will no longer be concentrated exclusively on them.

Q: How exactly would people go about hedging themselves?
A:
The assumption is that they would deal with retail institutions, such as insurance companies. They wouldn't do their own direct hedging. It would be like what farmers do. They don't actually hedge their crops on the Chicago Board of Trade. What they do is sell to a grain elevator, which guarantees the price. The owner of the grain elevator might offset its own exposure on the CBOT.

Q: When are these products coming?
A:
It takes decades, sometimes, for things to happen. I have a company, Case Shiller Weiss Inc., that's working with insurance companies on home-equity insurance. That might precede a futures market. This is a campaign that I expect to be waging for the rest of my life.

Q: How old are you?
A:
53.


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