The phrase was also used by Yale professor Robert Shiller, who was reportedly Greenspan’s source for the phrase. Shiller used it as the title of his book, Irrational Exuberance, in 2000.

Irrational exuberance is unfounded market optimism that lacks a real foundation of fundamental valuation, but instead rests on psychological factors. The term was popularized by former Fed chair Alan Greenspan in a 1996 speech addressing the burgeoning internet bubble in the stock market.

noun
exuberance

A Cantillon effect is a change in relative prices resulting from a change in money supply, which was first described by 18th-century economist Richard Cantillon. Instead, history shows that certain assets take favor over others, leading to rising in some areas of the economy and falling prices in others.

Greenspan wrote in his 2008 book that the phrase occurred to him in the bathtub while he was writing a speech. The irony of the phrase and its aftermath lies in Greenspan’s widely held reputation as the most artful practitioner of Fedspeak, often known as Greenspeak, in the modern televised era.

Precisely because he was considered to be so good at this, an uncharacteristically clear statement such as “irrational exuberance” was viewed as a strong signal to the markets and its meaning was widely discussed by financial journalists at the time of the speech.