3.3.2.2 Optimism

Few scholars have contributed more to our understanding of irrational investor behavior than Robert Shiller, and much of his insights on how psychological and cultural factors affect investment behavior are of direct use when studying voting behavior. Consider Internet stocks. The fact that many of these stocks have turned out to be overpriced suggests that investors had an exaggerated view of their potentia1.1 A possible explanation for this is what Shiller refers to as "new era economie thinking": "[T]he arrival of the Internet in the mid-1990 's was interpreted by many casual observers as a fundamental change that would boost the productivity of the economy, since the Internet is a communications and distribution system of fundamental importance."2 This new era thinking seems to have encouraged investors to invest in Internet stocks—until the bubble burst. The same thinking may well have encouraged them to vote in favor of proposed acquisitions of overpriced Internet companies.

The three and a half billion dollar acquisition by toy-maker Mattel of software maker The Learning Company in 1999 is arguably a case in point. The acquisition proved a disaster as The Learning Co. was sold shortly thereafter for a mere $27.3 million, less than one-tenth of the acquisition price. But when the acquisition was first announced it was heralded by management as an opportunity for Mattel to venture into the digital age.3 The enthusiasm was shared by Matters largest shareholder, the venerable investment firm Thomas H. Lee Co., which was quoted in a press release as saying that "[t]he ability [of the] combination to build their global leadership position and to do it in all relevant distribution channels, particularly the Internet, positions them to create significant shareholder value."4 This optimistic view proved representative of shareholder sentiment: a majority of Mattel shareholders voted for the acquisition, only to see shareholder value evaporate shortly thereafter.5