Editorial Director of the Harvard Business Review Group
-Nassim Nicholas Taleb, author of The Black Swan
Justin Fox is editorial director of the Harvard Business Review Group. Subtitled "A History of Risk, Reward, and Delusion on Wall Street," The Myth of the Rational Market is a fascinating history of the flawed and risky theories that have come to rule economic discourse in the last 50 years—most notably, the theory that markets are rational. A nimble economics and finance journalist, Fox writes about complicated issues with illuminating accessibility.
Fox blogs at the Harvard Business Review Group Blog and contributes regularly to Time, where he previously wrote a weekly column. He also started that magazine's influential Curious Capitalist blog, at Time.com. For over a decade before that, Fox was a writer and editor at Fortune, where he covered economics, finance, and international business. Fox is a regular commentator on the Nightly Business Report on PBS, and has appeared on NPR's Marketplace as well as The Daily Show With Jon Stewart.
The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
One of the many factors that led to the financial crisis was the widely held assumption that markets behave rationally. If markets are rational, how come they are prone to disasterous crashes? Why aren't markets able to react to forecasted problems before they happen, like rational entities should? Justin Fox takes square aim at the concept of market rationality and explains how this theory grew from academic theory to preeminent investor dogma. Fox combines business history, economics and politics into a narrative that is more like a Hollywood thriller than a University textbook, and shows audiences how the financial crisis was not a short term lapse, but a long term process. One of America's most trusted business journalists, Fox reveals market rationality for what it is: a hopeful myth.
The Myth of the Rational Market
Chronicling the rise and fall of the efficient market theory and the century-long making of the modern financial industry, Justin Fox's The Myth of the Rational Market is as much an intellectual whodunit as a cultural history of the perils and possibilities of risk. The book brings to life the people and ideas that forged modern finance and investing, from the formative days of Wall Street through the Great Depression and into the financial calamity of today. It's a tale that features professors who made and lost fortunes, battled fiercely over ideas, beat the house in blackjack, wrote bestselling books, and played major roles on the world stage. It's also a tale of Wall Street's evolution, the power of the market to generate wealth and wreak havoc, and free market capitalism's war with itself.
The efficient market hypothesis--long part of academic folklore but codified in the 1960s at the University of Chicago--has evolved into a powerful myth. It has been the maker and loser of fortunes, the driver of trillions of dollars, the inspiration for index funds and vast new derivatives markets, and the guidepost for thousands of careers. The theory holds that the market is always right, and that the decisions of millions of rational investors, all acting on information to outsmart one another, always provide the best judge of a stock's value. That myth is crumbling.
Celebrated journalist and columnist Fox introduces a new wave of economists and scholars who no longer teach that investors are rational or that the markets are always right. Many of them now agree with Yale professor Robert Shiller that the efficient markets theory "represents one of the most remarkable errors in the history of economic thought." Today the theory has given way to counterintuitive hypotheses about human behavior, psychological models of decision making, and the irrationality of the markets. Investors overreact, underreact, and make irrational decisions based on imperfect data. In his landmark treatment of the history of the world's markets, Fox uncovers the new ideas that may come to drive the market in the century ahead.