Myth of the Rational Market: History of Risk, Reward, and Delusion on Wall Street

by Justin Fox

Modern investing know-how is founded on the efficient market hypothesis, which holds that markets are rational and, therefore, difficult to beat. Originally codified in the 1960s at the University of Chicago, the efficient market theory became accepted wisdom for both academicians and market players. This theory has been the driver of trillions of investment dollars, the inspiration for index funds and vast new derivatives markets the world over. 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. The great financial crash of 2008 has forced the investment world to ask the heretical question whether the theory is, in fact, wrong. A hugely acclaimed international bestseller, The Myth of the Rational Market is a fascinating exploration of how and whether the efficient market theory is seriously flawed. The answer could affect how the world invests — and how you should. Celebrated journalist and columnist Fox introduces a new wave of economists and scholars who now agree with Yale professor Robert Shiller that the efficient market theory “represents one of the most remarkable errors in the history of economic thought.” The new thinking holds that investors overreact, under react, and make irrational decisions based on imperfect data. In his landmark book, Fox uncovers the new ideas that may come to drive the market in the century ahead. So, is your existing investment knowledge flawed? Do investors need to update themselves with new knowledge in order to profit in the contemporary markets? Read this book and decide for yourself; it may be the most important investment decision you will ever make .

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About the author

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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 created the Curious Capitalist blog for Time.com. Previously, Fox spent more than a decade as a writer and editor at Fortune magazine. He has been a senior fellow at the Harvard Kennedy School and a Young Global Leader of the World Economic Forum.