The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street
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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 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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Published Reviews
Choice Review
In Myth, respected editor and columnist Fox pits two heavyweight adversaries against each other: creators and adherents of the rational market versus their skeptical behavioral finance opponents. Scholars from many fields have produced a slew of recent books on individual and market rationality. Of those, Animal Spirits, by George Akerloff and Robert Shiller (CH, Jul'09, 46-6301), and The Irrational Economist, ed. by Erwann Michel-Kerjan and Paul Slovic (CH, May'10, 47-5135), are the closest to this book by virtue of their main focus--macroeconomics and risk management, respectively. But Fox's volume, with its tantalizing chronological exploration of the eggheads and practitioners (from Irving Fisher and Paul Samuelson to Gene Fama, Fisher Black, Robert Shiller, Warren Buffett, and Alan Greenspan) and ideas (random walks, the efficient market hypothesis, portfolio and option pricing) will bring smiles and tears to readers' faces and should be a required complement for anyone interested in these debates. Given that Fox is quite objective, this reviewer's only quibble is with the title: "Myths and Realities ..." might have been more descriptively accurate, but then the book would have sold less well, perhaps adding emphasis to those who believe in well-informed, rational decision makers. Summing Up: Highly recommended. General readers; students, upper-division undergraduate and up; researchers; professionals. A. R. Sanderson University of Chicago
Publisher's Weekly Review
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) (c) Copyright PWxyz, LLC. All rights reserved
Library Journal Review
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, St. Johns River Community Coll., Palatka, FL (c) Copyright 2010. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.
Library Journal Reviews
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, St. Johns River Community Coll., Palatka, FL
[Page 81]. Copyright 2008 Reed Business Information.Publishers Weekly Reviews
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)
[Page 46]. Copyright 2009 Reed Business Information.Reviews from GoodReads
Citations
Fox, J. (2009). The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street . HarperCollins.
Chicago / Turabian - Author Date Citation, 17th Edition (style guide)Fox, Justin. 2009. The Myth of the Rational Market: A History of Risk, Reward, and Delusion On Wall Street. HarperCollins.
Chicago / Turabian - Humanities (Notes and Bibliography) Citation, 17th Edition (style guide)Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion On Wall Street HarperCollins, 2009.
Harvard Citation (style guide)Fox, J. (2009). The myth of the rational market: a history of risk, reward, and delusion on wall street. HarperCollins.
MLA Citation, 9th Edition (style guide)Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion On Wall Street HarperCollins, 2009.
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