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The Myth of the Rational Market: Wall Street's Impossible Quest for Predictable Markets

3.85  ·  Rating details ·  1,974 ratings  ·  122 reviews
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 ...more
Hardcover, 320 pages
Published June 1st 2009 by Collins (first published September 1st 2008)
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Ushan
Nov 04, 2011 rated it liked it
Shelves: economics
Stock exchanges appeared at about the same time as joint stock companies, in the early 17th century. Mathematical analysis of the stock market had to wait until the early 20th century; it was done independently by a French and an American economist. They found that stock prices move more or less randomly; in a few years Albert Einstein used similar mathematics to analyze Brownian motion. This means that an investor no more has a way to predict the movements of a stock than a physicist has a way ...more
Mike
Sep 14, 2009 rated it really liked it
Recommends it for: Anyone

I had a lot of thoughts about what to say as I was reading this book, but I’ve let a couple of weeks go by and am straining to recall the points and themes I wanted to include. This isn’t the book’s fault: I found it engaging, informative and highly readable. No, I just let other events that life creates bump it off my priority list.

This book (The Myth Of The Rational Market: A History of Risk, Reward, and Delusion on Wall Street) primarily deals with two things: people and an idea.

The people ar
...more
Jacob
This is a decent history of economic thought as it regards markets, targeted towards the very curious layperson (someone who really wants to understand how people think markets work but not enough to make it a career themselves). To that extent, it's very useful for giving you a good idea of what you don't know, but if you want to go deeper and actually learn the things you don't know you'll have to go elsewhere. It is, however, a good jumping off point to do that.

The title of this book is a bit
...more
Joe
Jun 07, 2017 rated it really liked it
Shelves: nonfiction
While I think John Cassidy's How Markets Fail: The Logic of Economic Calamities is more accessible, this book definitely covers more ground. I think anyone planning on reading this book, though, might do better to start with The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis, because an understanding of Prospect Theory and Behavioral Economics would go a long way to understanding why the Efficient Market Hypothesis is based on false premises (the biggest false premise bein ...more
Mark
Jul 28, 2011 rated it really liked it
Not having a financial background, I came to this book looking for an introductory text. This is definitely not it! Although some who reviewed this book say it is too simple, for me, the opposite was sometimes true. First, I was frequently confused by the comings and goings of different characters in the story (this in spite of a “Cast of Characters” section at the end, which I only belatedly noticed halfway into the book). Secondly, the background knowledge of finance and economics was sometime ...more
Joseph Stieb
Sep 12, 2014 rated it liked it
Books about financial or economic history only work for me if the author takes the time to explain difficult concepts for the laypeople. This is where Fox's book falls short. I understand the idea of the rational market (efficient market hypothesis) and the behavioral economics critique of the rational market. There is plenty of interesting stuff in here, including a great chapter on behavioral economics and interesting profiles of crazy economists and financiers. There are also a number of grea ...more
The Angry Lawn Gnome
Mar 21, 2013 rated it really liked it
Two brief comments, more for my own recollection than anything else:

(1) I do wish Fox had gotten a bit more into discussing the attempts by economists to try and make their discipline more of a "hard" science and less of a "social" science. It seems to me that that is ultimately what is behind the attempt to create an edifice like the EMH, as well as things like "homo economicus," the "rational expectations" theory and so forth. The discussion of Thomas Kuhn's book was fascinating but I do wish
...more
David
Aug 10, 2009 marked it as to-read
Shelves: to-read-econbiz
A recent (free) hour-long podcast interview with author discussing this book available at

http://www.econtalk.org/archives/2009...
...more
Willowwind
Mar 02, 2010 rated it liked it
I couldn't see the whole title when I bought the audio book so the focus was not what I thought it would be i.e. I thought the interpretation would be broader than trying to beat Wall Street. The myth of the all knowing free market has done a great deal of damage to the average person worldwide. This was a tightly focused work and not really aimed at the general public. I want to avoid saying boring but it was very dry and dense. Still, I persisted because I felt that the information was importa ...more
David
Jun 07, 2011 rated it liked it  ·  review of another edition
This is a tour de force on the history of efficient market theory, from birth to death. Fox did yeoman’s work researching this, citing the influence of over 50 economists. But it was a little bit too much of a linear chronology that got tedious at times and I found myself rushing to get through some parts, while other parts held my attention firmly. His style was lively and it wasn’t just academic. To make a turgid subject lighter, he threw in a lot of fun trivia, such as Larry Summers is the ne ...more
Ram Kaushik
Jan 21, 2013 rated it really liked it
Shelves: economics
A very readable narrative of economic history through the last 120 years or so. The author clearly enjoys the intellectual battle of economic ideas between the quantitative efficient marketers of the Chicago school and the behaviorists who are more skeptical of any dubious claims of "the market is always right" crowd. Great spirited debate between the great finance intellectuals and Nobel laureates described here. I was left with the sneaking suspicion that a lot of brainpower has been wasted in ...more
Sushant Sawant
Dec 15, 2016 rated it liked it
This book is all about the people who were responsible for creating the rational market hypothesis and their constant effort of predicting how the market will behave in the near future. This book is a beautiful compilation of the century long history of current financial market.

This book is a treat to read if you know few things about finance and market behaviour. However if you are a person who is completely unaware of the financial concepts then you might find this book difficult to understand
...more
Robin Gane-McCalla
Sep 25, 2017 rated it liked it
This book gives a somewhat disorganized history of how people have invested in and thought of financial markets in the USA. The author goes through history dropping lots of names and their associations with theories, schools and firms. Unfortunately there are no diagrams or equations to elucidate the theories or demonstrate their effectiveness and generating profits or losses. There are interested anecdotes and stories, but no clear theory of the market is presented, just a series of ideas that ...more
Mehrsa
Feb 11, 2017 rated it really liked it
This book is a very compelling history of the theories of rational markets. I wish the focus of the book had been less on the men that cycled through Chicago and their interactions to eachother and more on the ideas and the debunking of them, but there is plenty of the latter to keep it very interesting.
Liz
Apr 02, 2010 rated it it was ok  ·  review of another edition
Well written, but all about econometrics - found myself snoozing through the things I could learn. Not really worth the whole read but I enjoyed the 1/3 I got though.
Ryan Melena
Jan 19, 2011 rated it it was ok
Shelves: audio-books
Wildly boring history lesson with an endless stream of names for the first half. Got much more interesting after the half-way point.
Chad Schollaert
Apr 27, 2012 rated it did not like it


Couldn't get into it. No solutions just criticism in my opinion. Though I agree the market is not rational.
John
Oct 11, 2016 rated it did not like it
Stultifyingly boring. Abandoned.
John
May 26, 2020 rated it it was amazing
Shelves: finance
I have read several good books about market history and also about the development of Modern Portfolio Theory (MPT). This one is a must for anyone who wants to understand the evolution of the "science" behind market factors and investing systems.

Fox's book was brought to my attention from reading Getting Back to Business: Why Modern Portfolio Theory Fails Investors and How You Can Bring Common Sense to Your Portfolio by Daniel Peris, which I also enjoyed. Peris writes about his own strategy and
...more
Jeremy
Dec 30, 2017 rated it it was amazing
Is the financial market truly efficient, or is it simply behavioral? When stocks that seem overpriced stay that way is the judgment of the pit to be trusted? When a CEO makes a killing while his company's stocks take a battering should investors be concerned? And given our industry's ill-fated success at handily transforming poisonous personal loans with the use of tranches into triple-A CDOs, have we really learned anything at all since the collapse of the Dutch tulip bubble in the 1630s?

These
...more
YHC
Jul 17, 2017 rated it liked it
This is not an easy book for me, so many people in this book and the information is pretty scattering, plus i am not good in finance. But reading it as a history book of our stock market going uncontrollable in a lighter way ( not light) is easier to finish.

Fun to see so many physicists and mathematicians actually stepped into the finance by using they equation the designed to influence the trading patterns or result. Are there really patterns or just pure probabilities?

My thought is If most i
...more
SSShafiq
Apr 28, 2018 rated it really liked it  ·  review of another edition
Shelves: econ-business
I started this book a number of years ago and left it with a few chapters left due to work pressures. Finally finished it and I must say it remains an engaging read. Most of this is not going to be new for people following economics over the last few years but it is a concise summary of how financial markets have considered risk. As a ex-finance perspective I can say this the sckeptism often noted by professionals regarding the theoretical models was ignored a little except near the end. I clear ...more
Kaab
Aug 31, 2020 rated it liked it
The book is good in itself and the author knows how to write very well. However, I would only recommend the book to someone who wants a good outline of the history of the rational market hypothesis and maybe pick up from there.
I think it gave me a superb introduction to the history of finance in academia and it is quite nice when you recognize some of the names later on because you read the book.

However, there are some downsides to the book, as well. For starters, sometimes the book felt like a
...more
Mark Isaak
May 16, 2017 rated it really liked it
For anyone interested in how modern economics and finance came to be the way it is, I highly recommend this book. It far exceeded my expectations for both readability and entertainment. Granted, my expectation for economics books starts pretty low, and it is not as entertaining or readable as Harry Potter, but it covers complicated issues with surprising ease. It is not quite ideal in that regard; Fox has an appendix summarizing the major historical players, but a one- or two-page glossary defin ...more
Pedro Salmeron Carvalho
Feb 27, 2018 rated it it was amazing
Shelves: finance
Very good summary of the main developments in the rational thinking of how markets work. Justin is a journalist and the book take that catch, however without leaving several notes and technical explanations of the important concepts.
The author focuses on the important ideas that surrounded the developments of market instruments, technicalities, strategies and wealth.
There are good stories on the sell and buy side, specially the money management industry, and its relationship with nobel-prized sc
...more
M.R. Raghu
Sep 25, 2018 rated it really liked it
One of the most difficult book to finish but when i did, i emerged more knowledgeable! In what appears to be a academic domain, Justin Fox managed to appeal to lay readers like me in connecting the dots to the much debated efficient market hypothesis. True to the title, the author veers towards behavioral aspects of markets and presents both sides of the story (rational vs. irrational) very well.
Reader Variety
Sep 28, 2017 rated it liked it
Shelves: finance
Fun to read summary of the development, and transformation through time, of the efficient market theories. Written in 2009, so a great year to write a book disproving the efficient market theories, but I just read it in 2017, so after having the markets "correct" to more expected longer term levels, not sure if the book holds as much punch as in 2009.
William A
Apr 23, 2018 rated it it was amazing
This book was recommended to me by several people over the years, but I was deterred by the title. The book is great, and the title is a bit misleading. The book, more than anything else, is a rather good history lesson on financial markets, providing context and behavioral anecdotes. This book gives some perspective to the hodgepodge of the world's financial markets today.
Angela
Mar 30, 2020 rated it liked it
Shelves: f
I think this book was an interesting read. It pointed out a few things which I didn't pay attention to before, it provided a history of financial markets and development of different theories which is always a nice refresher, and it clearly shows that stock market is nothing but a game with high stakes.
Joe Kurtek
Apr 04, 2020 rated it it was amazing
I found this book extremely interesting. It goes through pretty much the entire history of the stock market, most of the fundamental economic theory / key players and details every major event / era. I liked it. It wasn't overly technical and primarily got the key points and stories across in a very engaging and page turning manner. Really enjoyed this one.
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Goodreads Librari...: Disambiguate: Justin Fox 3 16 Sep 20, 2014 02:45PM  

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Librarian Note: There is more than one author by this name in the Goodreads data base.

Justin Fox is Executive Editor, New York, of the Harvard Business Review and writes frequently for HBR and HBR.org. He is the author of the 2009 bestseller The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. Before joining HBR in 2010, he wrote a weekly column for Time and cre
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