The myth of the rational market : a history of risk, reward, and delusion… (editie 2009)

The Myth of the Rational Market is an extensive history of the efficient market hypothesis, starting in the late 1800s and continuing all the way through 2008. It covers all the major players, explains the discoveries and theories that lead to the hypothesis, and explains how it came unraveled in the 1980s and beyond. As economics can be, sometimes it was a little hard to keep all the threads aligned in my head. Fox does a fairly admirable job of juggling them all, better than many economics texts I’ve read.

It’s rare for me to finish an economics book and feel better informed with information on issues that I actually discuss with friends. Okay, mostly I’m talking about wing-nut friends who like to post "the market is always best" tripe on Facebook or LiveJournal. Now I’ve got the evidence to say "you’re an idiot".

Full review here: http://reading.kingrat.biz/reviews/myth-of-the-rational-market-justin-fox ( )

Time Magazine’s Curious Capitalist takes a look at the history of the efficient-market hypothesis— the notion that market prices reflect aggregate wisdom— in the past century. He livens up the discussion of economics by highlighting the characters involved, bringing much-needed color to discussion of the dismal science. The history shows how the idea developed in academia and found expression in finance, until burgeoning contradictions from the real world began to undermine the notion that we can just leave unregulated free markets to solve all our problems, and points the way to new developments in behavioral economics that help to explain the past and may help us to guide the future. He closes with a moderate perspective:

Where does this leave us? It leaves us with a need to find ways to temper speculative excess while acknowledging that we won’t necessarily be able to distinguish speculative excess from an entirely sustainable boom. Financial regulation will be part of that. A rediscovery of ethics and integrity ... will play a role, too, one hopes. So will memory...

If the events of recent years haven’t already convinced you that rational markets belong to the same domain of idealized tools as frictionless surfaces, massless pulleys, and perfect blackbodies, this will provide you with plenty of food for thought. If you already thought that, it’s a good history of a major current in the economic and financial thinking of the past century. ( )