Nobel prize-winning economist Robert Shiller is worried the coronavirus fear factor will weigh on the country for years.
According to the Yale University professor, the economic and psychological toll from the coronavirus pandemic could linger — especially if states scrap reopenings due to the virus spikes.
"Looks like we might be entering a second phase," Shiller told CNBC's "Trading Nation" on Tuesday. "There might have to be closures again. It might have a worse psychological response the second time."
He warns the big risk is people start thinking the setback will last forever and it impacts their willingness to take risks. That mindset could turn into a self-fulfilling prophecy, dramatically hurt demand and push more businesses to the brink.
"We don't have to keep up with the Joneses anymore," said Shiller. "That might create a different kind of culture that would last for years that you don't have to show the latest fashions and drive a spanking new car. We just learn that you can relax. But that is bad for the economy."
Shiller, an expert in how our emotions drive financial decisions, wrote the 2019 book "Narrative Economics: How Stories Go Viral and Drive Major Economic Events."
In the stock market's case, he finds investors typically find comfort in familiar patterns that can help them navigate downturns.
"People remember recent price movements, and they expect them to repeat themselves," he said. "They tell a story."
Shiller notes the market doesn't always show consistent relationships with economic activity. In this case, the massive fiscal and monetary stimulus measures have been acting as a backstop.
"People could easily think that it's not essential to the economy, and it will soon be over. But I think there's more at work to it than that," he added.
But that doesn't mean stocks are in the clear. Shiller still classifies the market as risky and is concerned about the economic recovery.
"One thing that's quite striking is the lack of interest in the whole thing until suddenly after the market peaked in February," Shiller said. "For a while it looked like people were suddenly scared, and then it came right back up. I think that has something to do with how stories evolve, and the initial story was a Great Depression again."