The Myth of the Rational Market

The Myth of the Rational Market

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by Justin Fox
     
 

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“Do we really need yet another book about the financial crisis? Yes, we do—because this one is different….A must-read for anyone who wants to understand the mess we’re in.”
—Paul Krugman, New York Times Book Review

 

“Fox makes business history thrilling.”
St. Louis

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Overview

“Do we really need yet another book about the financial crisis? Yes, we do—because this one is different….A must-read for anyone who wants to understand the mess we’re in.”
—Paul Krugman, New York Times Book Review

 

“Fox makes business history thrilling.”
St. Louis Post-Dispatch

 

A lively history of ideas, The Myth of the Rational Market by former Time Magazine economics columnist Justin Fox, describes with insight and wit the rise and fall of the world’s most influential investing idea: the efficient markets theory. Both a New York Times bestseller and Notable Book of the Year—longlisted for the Financial Times Business Book of the Year Award and named one of Library Journal Best Business Books of the Year—The Myth of the Rational Market carries readers from the earliest days of Wall Street to the current financial crisis, debunking the long-held myth that the stock market is always right in the process while intelligently exploring the replacement theory of behavioral economics.

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Editorial Reviews

Paul Krugman
Do we really need yet another book about the financial crisis? Yes, we do—because this one is different. Instead of focusing on the errors and abuses of the bankers, Fox…tells the story of the professors who enabled those abuses under the banner of the financial theory known as the efficient-market hypothesis. Fox's book is not an idle exercise in intellectual history, which makes it a must-read for anyone who wants to understand the mess we're in.
—The New York Times
Roger Lowenstein
Fox…spins a fascinating historical narrative, beginning with economist Irving Fisher's paean to markets in, alas, 1929.
—The Washington Post
Publishers Weekly

At the core of the current financial crisis has been the widely held assumption that markets behave rationally. Fox, Time magazine editor-at-large, isn't the first to bring scrutiny-or censure-to the conceit, but his analysis is singularly compelling, and the rare business history that reads like a thriller. Fox leads us on a chronological journey of modern economic theory, featuring the cast of scholars who constructed the 20th- and 21st-century financial landscape, from Irving Fisher to such post-WWII figures as Milton Friedman, Harry Markowitz, Franco Modigliani and Merton Miller, Jack Treynor and William Sharpe. Fox offers a behind-the-scenes glimpse at academia's finest, complete with amusing anecdotes about the players and their theories, and illustrates how our economic behaviors and markets have been shaped by a gradually refined theory holding that the stock market prices are both random and perfectly rational. A must-read for anyone interested in the markets, our economy or government, this dense but spellbinding work brings modern finance and economics to life. (July)Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

Library Journal

Fox, a Time editor at large and economics columnist, here takes readers through the history of academic research on financial markets since the late 19th century. He focuses on the development of the Efficient Market Theory and its fall from dominance, which resulted largely from the rise of behavioral finance. The Efficient Market Theory uses mathematical models to show that investors act on information as it becomes available, making pricing so efficient that an investor would be unable to beat the market without insider information. Fox argues convincingly that this theory has been eclipsed by behavioral finance, which studies investors' psychology to show that markets are not as rational as the Efficient Market Theory presents. The style here is journalistic, with personal stories that make the book entertaining, but ultimately this is a history of academic thought-complete with endnotes-and is best suited for students of finance or people interested in financial theory.
—Robbie Allen

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Product Details

ISBN-13:
9780061885709
Publisher:
HarperCollins Publishers
Publication date:
06/09/2009
Sold by:
HARPERCOLLINS
Format:
NOOK Book
Pages:
416
File size:
615 KB

Meet the Author

Justin Fox is editorial director of the Harvard Business Review Group, and a contributor to Time magazine and PBS's Nightly Business Report. Previously, he was a columnist at Time and an editor and writer at Fortune. He lives in Cambridge, Massachusetts, with his wife and son.

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