Lecture 1: Introduction and What this Course Will Do for You

What this lecture covers

This opening lecture answers a simple question: what is Financial Markets actually about, and why should you take it seriously even if you never work in finance? Shiller argues that finance is not primarily about getting rich but about allocating resources, managing risk, and organizing large groups of people to build things that matter. He positions the course as complementary to Yale's more mathematical finance course (taught by John Geanakoplos) and explains that this one will stay closer to institutions, history, and real-world detail.

After watching, you'll understand the scope of the course, how it's graded and structured (textbook, problem sets, teaching assistant sections, guest speakers), and have a roadmap of what each of the 20 lectures covers, from risk and financial crises through real estate, banking, and public finance.

Key ideas

• Finance as a pillar of civilized society: Shiller frames finance as the structure through which resources are allocated across space and time and big risks are managed, not just a field for trading.
• Division of labor with Econ 251: Geanakoplos's course covers the mathematical theory of finance in depth; this course emphasizes institutions, history, and the real world with only light mathematics.
• The financial crisis motivates the course: the 2007-2008 crisis, the worst since the Great Depression, is why this iteration of the course was updated and why several lectures return to it.
• Finance jobs vastly outnumber other analytical careers: Bureau of Labor Statistics projections show far more financial analysts and managers than economists, astronomers, or mathematicians combined.
• Wealth is not the goal: most people on the Forbes 400 list made money by building and running large organizations, not through celebrity, and Shiller argues the field carries a moral obligation once wealth is made.
• The Gospel of Wealth: Andrew Carnegie's 1889 essay argued that people skilled in business have a moral duty to give their fortunes away productively during their lifetime rather than leave them to heirs.
• Behavioral finance: the application of psychology and sociology to financial decision-making is a recurring theme of the course, reflecting a shift in how academic finance has been studied over the last few decades.

Walkthrough

Course purpose and philosophy (2:05)

Shiller opens by describing finance broadly: banking, insurance, securities, futures, derivatives, and financial crises, with a deliberate U.S. bias balanced by an effort toward a world perspective, since the course is filmed for Open Yale and watched internationally. He explains this is the second time the course has been filmed for Open Yale and that it needed updating because of the 2007-2008 crisis.

Relationship to Econ 251 and course structure (6:09)

He contrasts his course with John Geanakoplos's more mathematical Financial Theory course, explains that this course keeps math light while still covering core principles through TA-led review sessions and six problem sets, and describes the textbook by Fabozzi, Modigliani, and Jones as the main required reading.

Finance as a career and as a moral purpose (13:23)

Shiller argues finance is not fundamentally about making money, comparing it to engineering that works with people instead of machines. He describes his in-progress book, Finance and the Good Society, and argues that even though public anger at finance grew after the crisis, the field as a whole is not immoral.

Finance jobs versus other careers (22:50)

Using Bureau of Labor Statistics data, he shows the number of finance-related jobs projected for 2018 dwarfs the number of jobs for economists, astronomers, sociologists, and mathematicians, arguing the course has practical career value regardless of a student's ultimate path.

The Forbes 400 and the moral obligation of wealth (25:53)

Shiller examines who actually appears on the Forbes list of richest Americans (mostly business builders, not athletes or movie stars) and introduces Andrew Carnegie's The Gospel of Wealth, which argues that people gifted at building businesses have a duty to give their fortunes away productively rather than pass them to children who may squander them.

Outside speakers and teaching assistants (40:07)

He introduces the three planned guest speakers: David Swensen (Yale's chief investment officer, who grew the university endowment from under $1 billion to over $16 billion), Maurice "Hank" Greenberg (former AIG CEO), and Laura Cha (a Hong Kong financial regulator). He also introduces the four teaching assistants and their research interests, including behavioral finance and mutual fund fee structures.

Outline of the 20 lectures (50:26)

Shiller previews the rest of the course lecture by lecture: risk and financial crises, technology and invention in finance, portfolio diversification, insurance, efficient markets, debt markets, the stock market, real estate, behavioral finance, banking, forwards and futures, options, monetary policy, investment banking, money management, exchanges, and public and nonprofit finance, closing with a final lecture on finding purpose in finance.

Before you watch

• No finance background is assumed beyond an introductory economics course.
• If you want the mathematical treatment of the topics introduced here, Shiller points to Yale's companion course, Economics 251 (Financial Theory), taught by John Geanakoplos.

Check your understanding

1. According to Shiller, why does he consider finance a pillar of civilized society rather than just a field about trading?
2. What is the core argument of Andrew Carnegie's Gospel of Wealth, and how does Shiller qualify his endorsement of it?
3. How does this course differ in emphasis from Yale's Economics 251, and why does Shiller say the two are complementary?
4. What does the Bureau of Labor Statistics data on finance-related jobs suggest about the practical value of studying finance?