The Inefficiency of the Market Isn’t an Open Question

In an article on the front page of Tuesday’s Times, Binyamin Appelbaum did a nice job of highlighting the difference in views between Robert Shiller and Eugene Fama, who shared this year’s economics Nobel memorial prize with Lars Peter Hansen. But there’s a danger that some readers may come away from the article, and other news coverage of the prize, with the impression that the issue of whether financial markets are efficient remains unsettled. It isn’t. After living through a stock-market bubble and a credit bubble in the past decade and a half, we can be quite sure that financial markets are sometimes chronically inefficient. The only outstanding question is how far this inefficiency extends.

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