In this fascinating book, Justin Fox, the business and economics columnist for Time magazine, charts the rise and fall of the myth of the efficient market. This notion was mostly American in origin, so Fox tells its story in a few universities, including, crucially, Chicago. Fox shows how life has exploded the idea that the market can rationally process information and allocates resources efficiently to the optimal use.

This is in part a history of those looking for a sure-fire way of making money from the stock market. They share the fantasy that they can know where share prices are going and the level of risk, and that they can produce a `scientific forecast of the market'. Of course, when markets crash, most investing `stars' crash too. If the market were efficient, surely speculators could never beat it?

But the crash of capitalism has crashed its theories too. As Alan Greenspan admitted, "the whole intellectual edifice collapsed." Adair Turner, chairman of the Financial Services Authority, said that we had experienced `a fairly complete train wreck of a predominant theory of economics and finance'.

Clive Granger and Oskar Morgenstern's 1970 book, Predictability of stock market prices, said, "It is ... a subterfuge going back at least to Adam Smith and David Ricardo to say that market price will always oscillate around the true (equilibrium) price. But since no methods are developed how to separate the oscillations from the basis, this is not an empirically testable assertion and it can be disregarded."

Eugene Fama, who had in the 1960s formulated the efficient market hypothesis, admitted in 1991, "Irrational bubbles in stock prices are indistinguishable from rational time-varying expected returns." There was no way to know if the market was irrationally volatile or not. He now believed that prices could go wrong and stay wrong: he no longer believed that prices were right.

Markets' behaviour determines the economic reality that market prices are supposed to reflect. The market is created subjectively; it does not reflect the real world.

The market is actually not about efficiently allocating capital but about giving speculative parasites chances to make vast profits with our money. As Larry Summers, Clinton's Treasury Secretary, concluded, "We might all be better off without a stock market."

The book provides some good history. It is written by a reporter rather than an economist. It offers little insight on where we can expect the new behavioral economic thought that will now likely evolve will take us. I do hope that the author is correct that we will see economics move away from being so statistical and math driven and return to a more appropriate philosophical approach.

This book is outstanding!

My father was financial VP for a large firm. I am a physicist. As I grew into an age to be interested in the market, my father gave me the book 'A Random Walk Down Wall Street'. This was in the 1970s, just as index funds were coming into being. It made sense and shaped my understanding of the market over most of the past 40 years. But, looking back, I find that I have been fighting the concept most every step of the way - through the early 1980s, 1987, early 1990s, 1998, 2000, 2003 and most recently 2008-2009. These were not 'random' times.

'The Myth of the Rational Market' is an eye opener for all those with a similar, 'average investor' history. It provides an outstanding historical perspective and presentation of how the 'science' of economics developed over the past (less than) 100 years - the over simplifications, links to the ideas of classical physics (Brownian motion and the like), touching on the ideas of complexity, trying to develop mathematical theories of the market, but never achieving an understanding. Perhaps it is all a bit too complex for those who simply want to make money in the market.

That's my take away. Underlying the market is some relation between stock price and value of a company. Certainly, as a company grows and becomes more profitable, its stock price will rise. Warren Buffet's 'buy the cigar butts' theory of value investing works. But, along the way there will be wide excursions in stock price resulting entirely from irrational human sentiment. I expect there is a way to mathematically understand these chaotic swings and develop macro models that work to predict such phenomena, or at least see them developing, but I also know now that such models will not be simplistic random excursions around a mean.

Still don't believe? Read 'Lords of Finance: The Bankers Who Broke the World'.

Science gives rise to a distinct cycle of publications. First come the journal articles, full of equations and accessible only to a few. They are the stuff discoveries are made of, although most of the time a published paper offers only a marginal contribution, a small footnote to an already established edifice. Publications are valued only with respect to a body of literature. They never stand in isolation. Bibliographies map the field with invisible threads of references and quotations. It takes a while to determine which entries add the most to a body of knowledge or, when the article departs from established wisdom, whether it constitutes a breakthrough or a dead-end. Journal articles are mostly all what graduate students get as reading material, with the injunction to improve upon that stock of knowledge.

Then come the textbooks, written with a different public in mind and for a different purpose. Ideas that had once been too complex to tackle for anyone but a select few are now presented in quintessential form. Everything looks simple once you have been taught it. Almost inconceivable mysteries are transformed into mere formulations and rules. Students are not motivated by the thrill of discovery; they are after the easy answer, the practical solution to a set of well-defined problems. These techniques will be put to use in various contexts, and they will shape the automatisms and rules of thumb that are all that remains once the content of a college education has been forgotten.

The next stage belongs to the science book, the journalistic essay aimed at the general public. The best science books try to recreate the thrill of discovery, and to put the magic back into the field. They do so by collecting the lore and legends that arise whenever great minds are concentrated. They make public what had once been transmitted as private jokes and anecdotes communicated on the margin of serious teaching. Because most scientific content remains beyond the reach of literary description, they have to find a new angle, and make research into seemingly arcane subjects sound relevant for the public at large. They tend to emphasize science's applications, its ability to shape a world of our own making.

The study of finance has now reached the stage where bestseller books by magazine columnists are written about the discipline. The Myth of the Rational Market, by Justin Fox from Time magazine, offers a fine account of the evolution of financial economics, from its origins on the eve of the Great Depression to contemporary developments in the wake of the subprime crisis. At first I was worried by the proximity of this book to Peter Berstein's series of books on the same topic. But I was reassured by the generous endorsement from the author of Capital Ideas on the back cover of this book, and I came to see the complementarities rather than the repetitions between the two projects. Peter Berstein is a practitioner turned chronicler, and he uses his in-depth knowledge of market actors to replace financial economics in its broad intellectual context. Justin Fox is a journalist, and he has done his journalistic work right. He is even able to teach Robert Shiller a lesson or two about Irving Fisher, the Yale professor with whom he begins his narrative, who in 1929 got his predictions spectacularly wrong but who otherwise pioneered many future developments in the field of finance.

Justin Fox's strength is that he got his equestrian's tips straight from the horse's mouth. He has interviewed almost all the pioneers of the field who are still living, sometimes several times and over an extended period of time. Although the endnotes don't refer to particular interviews, this is because all remarks and life episodes not otherwise attributed were collected by the author. Especially worthwhile were the interviews with Milton Friedman, the Pope of the rational economic man, whose teachings at Chicago inspired generations of students. Friedman is described as a charming, friendly, ever-tempered little man saying outrageous things. This is how Friedman dismissed behavioral finance before it even took off: going around asking people about their economic decisions is "about on par with testing theories of longevity by asking octogenarians how they account for their long life." Or how he recalls Jimmy Savage's saying: "the role of statistics is not to discover truth. The role of statistics is to resolve disagreements among people." On speculation: "People who argue that speculation is generally destabilizing seldom realize that this is largely equivalent to saying that speculators lose money."

There are also valuable quotes from other pioneers in the field. This is how Merton Miller explained the significance of the series of paper on corporate finance he wrote with Franco Modigliani: "The pizza delivery man comes to Yogi Berra after the game and says, Yogi, how do you want this pizza cut, into quarters or eighths? Yogi says, cut it into eight pieces. I'm feeling hungry tonight." Or Paul Samuelson on mutual fund performance: "There is only one place to make money in the mutual fund business--as there is only one place for a temperate man to be in a saloon, behind the bar and not in front of the bar." But perhaps the best piece of humor comes from Larry Summers' speech at the annual meeting of the American Finance Association, when he compared the entire discipline of finance to economists devoting their whole career studying ketchup. The "ketchup economics" speech ranks along with Paul Krugman's theory of interstellar trade among the most hilarious writings in the so-called dismal science.

If economists are often in disagreement among themselves, financial economists disagree enormously. In 1978, Michael Jensen declared: "I believe there is no other proposition in economics which has more solid evidence supporting it than the Efficient Market Hypothesis." In 1987 Robert Shiller, based on available evidence, could conclude that "the efficient market hypothesis is the most remarkable error in the history of economic theory." The reason why economists clung to their model even if it was proven wrong is to be found in the practical implications it offers for financial management. Says Miller: "There is only one theory of efficient markets. There are hundreds of theories of inefficient markets." Or Fama: "I don't know what asset pricing would look like in a world that really took behavioral science seriously."

What struck me upon reading this book was how much financial economics is an American science. There is barely any mention of research done outside the US. The production of new ideas and new theories was concentrated around a few campuses and institutions, most notably the university of Chicago, where the economics department, the business school, and the law school benefited from a pro-market environment. The next stage in the development of the discipline may well be the globalization of financial economics. Contacts with other research traditions (think about mathematical psychology in Israel, or industrial economics in Toulouse) may lead to new convergences and new departures.

Fox' treat on the rise (and fall?) of the efficient market hypothesis (EMH) has certainly qualities. The best bits are where Fox explains how the theories developed at Chicago conquers Wall Street in the 60s and 70s. Jack Bogle started the world's first and largest index fund - Vanguard, as a direct result of the research at Chicago University. Similarly, I found the stories regarding CAPM, Michael Jensen's cost of capital and the Black/Scholes option pricing formula very interesting. And some of the portraits, of men like Ed Thorp and Paul Samuelson are very good.

Still, the book has three big drawbacks to me. First, Fox is on a mission. He thinks the efficient marketers are stupid, dogmatic and ideological whims, in love with their elegant mathematical models, completely out of touch with reality, including the very financial world they claim to study. This campaigning comes out quite clear far too often. Despite his campaigning style, Fox offers no alternative to the EMH.

Second, the book is quite imprecise. It offers no graphs, no equations (not even in the notes or appendix), no tables. That is rather disturbing regarding Fox' issue: quantitative finance. If he really has read the sources he lists, his own work would be more solid if he had included some quantitative illustrations to the text.

Third, important parts of the book are rather messy. Especially in the first four chapters it is are hard to follow the chronology of events and theories evolving. To be fair; this improves in the course of reading, but still is a major shortcoming. Fox should have given more time to the starting chapters.

All in all, though, the book points to several good reading tips. I learned a lot, but I could have learned it more efficient.

The "short but sweet" is hopefully my review, not the book,

A dizzying array of economists and theorists only servs to prove a simple axion, one previously applied to Hollywood, but might as well apply to everything. "No one knows anything." The one thing this book makes clear is that we are at the same point we were before the theorists and the chartists took over. The future is anyone's guess. I admit I did not understand one thing in this book, but having found my lack of understanding, I found the one thing that really works. Keep trying and hope you get lucky. Soros and Buffet may have just well have won the lottery. People love to find the reason that everything happens, but they always find the reason after it has happened, which is of course no reason at all. It's just human nature. Looking for explanations for what has already happened to predict the future. Guess what, the future is unknowable. Get over it.

I ordered the book in the hope of learning about the evolution and underpinnings of the idea of the rational market. Yes, that information is somewhere in there; but it is buried between myriad names of people and their often rather insignificant relation to each other.
I should mention that I did not finish the book. After the first quarter I gave up because of the aforementioned, and then skimmed the rest of the book to see whether it deviated from the style of the first quarter. Which it didn't from the looks of it.

From the Fana & French Forum:

The premise of the Fox book is that our current economic problems are largely due to blind acceptance of the efficient markets hypothesis (EMH), which posits that market prices reflect all available information. The claim is that the world's investors and their advisors in the financial industry bought into this model. Because they ceased to investigate the true value of assets, we have been hit with "bubbles" in asset prices. The most recent is the rise and sharp decline in real estate prices which froze financial markets and led to the worst recession since the Great Depression of the 1930s.

The book is fun reading, but its main premise is fantasy. Most investing is done by active managers who don't believe markets are efficient. For example, despite my taunts of the last 45 years about the poor performance of active managers, about 80% of mutual fund wealth is actively managed. Hedge funds, private equity, and other alternative asset classes, which have attracted big fund inflows in recent years, are built on the proposition that markets are inefficient. The recent problems of commercial and investment banks trace mostly to their trading desks and their proprietary portfolios, and these are always built on the assumption that markets are inefficient. Indeed, if banks and investment banks took market efficiency more seriously, they might have avoided lots of their recent problems. Finally, MBA students who aspire to high paying positions in the financial industry have a tough time finding a job if they accept the EMH.
This review from Fana/French Forum:


I continue to believe the EMH is a solid view of the world for almost all practical purposes. But it's pretty clear I'm in the minority. If the EMH took over the investment world, I missed it.

The Fox book is an example of a general phenomenon. Finance, financial markets, and financial institutions are in disrepute. The popular story is that together, they caused the current recession. I think one can take an entirely different position: financial markets and financial institutions were casualties rather than the cause of the recession.

But suppose we buy into the more common negative current view of finance. There is still a big open question. Beginning in the early 1980s, the developed world and some big players in the developing world experienced a period of extraordinary growth. It's reasonable to argue that in facilitating the flow of world savings to productive uses around the world, financial markets and financial institutions played a big role in this growth. Despite any role of finance in the current recession, are the market naysayers really ready to argue that worldwide wealth would be higher today if financial markets and financial institutions didn't develop as they did?

Toward the end of the book, Fox concludes that passive investing is the right choice for almost all investors. My academic friends in behavioral finance (for example, Richard Thaler) almost always end up with a similar conclusion. In my view, this is an admission that the EMH provides a good view of the world for almost all practical purposes. At which point, I say I won.

This book is pretty good, but the best business book of the decade is Monkey Business: Swinging Through the Wall Street Jungle (John Rolfe, Peter Troob). It's an awesome, quick read and given that it was written almost a decade ago, but is amazingly prescient about just what a useless, self-serving job investment banking is, and how bankers add very little value to the world. The authors just released a new edition, with an afterword focused on the financial crisis. You can read it in one or two sittings, and its a real side splitter.

There are few books that I read that leave me feeling as if I have taken a trip down memory lane. The Myth of the Rational Market was that for me.

In my junior year at Johns Hopkins, I wrote my senior thesis on predicting splits in the stock market. I had to do it in my junior year because I had applied to do a combined BA/MA in political economy in my senior year.

My thesis, springing from what I had learned in Dr. Carl Christ's class on financial economics (which in itself was an anomaly in the political economy department), forced me to analyze the then-fresh literature on event studies on efficient markets, including the famous paper by Fama, Fisher, Jensen, and Roll on how it was impossible to make money off of stock market splits.

That paper was important, because prior research was not agreed on the topic, and it was an example of something not all that significant that could be a signal of greater things -- that managements would only split the stock when they had confidence.

Young David, having been raised in a home where his self-trained mother had regularly beaten the market, found the efficient markets hypothesis less than compelling. Like his mother, he felt that superior analysis of fundamentals should outperform.

But here was a situation where it was obvious that stocks that split outperformed before they split. My thesis asked, "Could splits be predicted?"

Going through the literature, I came up with some variables that could be useful -- some were valuation-based, some were technical (price, volume), and some were anomalies (insider trading). I ended up finding that stock splits could be predicted more often than not, but more importantly, that the variables that correlated with stock splits were more generally correlated with outperformance (in the 7%/yr region). Those variables included valuation, momentum, and insider trading -- which for a paper written in 1982 was notable. I concluded that the Efficient Markets Hypothesis was flawed, also notable for its time.

Wait -- this is a book review. As I read Justin Fox's work, I admired its ambition. This attempts to cover financial markets efficiency, with some efforts toward economic efficiency generally. It covers a lot of ground -- all of the major players in the efficiency of financial markets debate are featured, and written about in simple language -- there are no equations to wade through as I once did. This book is comprehensive, and touches on many of the more obscure critics of the Efficient Markets Hypothesis. Bright men who are tangential to the Financial Economics profession get their play -- Kahneman, Tversky, Minsky, Mandelbrot, and more

Many of these men that questioned market efficiency went down the same trail that I did; they were led by the data, which conflicted with neoclassical economic theory. Many of them came to my view that the market is pretty efficient, but not perfectly so. Efforts at finding inefficiency promote market efficiency. Efficient markets make people lazy, which leads to inefficiencies that can be profited from.

I liked this book a great deal. It gets a bit thin at the end when it tries to incorporate the current crisis into its framework. More broadly, it is at its weakest where it merely touches on a significant contribution, but does not dig deeper. That said, a book of 500 pages would be far less readable than one of 300+.

Who would benefit from this book:

* Those who are too certain about their positions on market efficiency.
* Those that assume that the market is always or rarely right.
* Those that select asset managers, because there is a lot of volatility around investment returns. What is luck? What is skill? We know less here than we imagine.
* Academics in economics that are not familiar with the finance literature, because this would give an outline of the questions involved.

Gauss bell is the most important result of the application of stathistics to economy.
The price indexes are utilized to preview the patterns of Wall Street.
But the possibilities granted by the probability don't avoid the fear for crash like in 1930.
The mistake consists for the auctor to consider the economic phenomena as smooth equations and not random walks.
The correct definition of expected value allows to the operators the resolutions of many problem related to the free market.
For this mathematic aspect it is important the Morgensten-von Neumann work.
The last comparative models are about the Keynes school.

When I went to attend in China back earlier 80s in psychology, I am surprised to find that he got a Nobel Price in Economics. By reading this book, I linked the two together. Justin wrote this segment financial history in such detail and fresh way, I felt that I almost watched a great movie that full of actors. Really enjoy it. My personal take is that the two side forms a full cycle. Somehow, I feel that the following question is different, although they are related:

Is market predictable?
Is market efficient?
Is market rational?
Is price = value

The market is a man-made system, like any artifact; there is fault by its very design. The equilibrium theory is mathematically most beautiful to tackle this man-made system without considering man. Obviously there is a problem intuitively. There is a MAN, and there is interaction between man and man-made market system. To model this, it is hard and mess, may be only can be done in ad hoc way. That is why it is a mess. There is a time-delay, there is black, there is reflexes, there is irrationality. Some of them are beyond the scope of current capability of math. It is hard problem, may be this problem is NP problem.

This is a great book, but I suspect that those who have been lured by the title will be disappointed that it is not mere finger-pointing at those who "caused" the ongoing economic turmoil. Instead it is a succinct and comprehensive history of financial theory (I learned that finance is a separate discipline from macroeconomics) since the late nineteenth century.

Other reviewers have complained that it's a difficult read, and it is, because you're getting at least a years worth of college financial study in a mere 325 pages, and finance is certainly one of the most difficult topics imaginable -- second, I suppose, only to particle physics, and on several pages, Justin Fox compares market activity to Brownian motion (which, after all, took Einstein to figure out).

So you're getting a [boat]-load of abstruse information in a form that's more concentrated than orange juice. But read it anyway, because Fox has done a superb job of translating recondite economic jargon (a/k/a, gobbledygook) into plain (though not always grammatical) English. The names of some 255 men (and five women) are trotted out, each of whom has some theory of market behavior, always a complex theory, but Fox has the good sense to provide exactly what most such books lack -- a list of characters that reminds you of why each is significant. True, the list is only 37 names, but even better, when a name is reintroduced after an absence of fifty pages or so, Fox is kind enough to add a sentence (or at least a clause) to remind you of who he is, so you needn't go scurrying back to the index if you've forgotten. (It's a fine index, too.) All books should be so thoughtful.

Best of all, Fox seems to have no ax to grind and no politics to peddle. He ain't tryin' to sell you nuthin'. Of course, the free-market Pentecostalists are pre-outraged that he questions that the sacred markets could possibly be anything less than rational and perfect, but trust me -- this book is very evenhanded. Toward the end of the book, Fox offers a very sapient 2005 quote from Alan Greenspan, and two pages later there's an egregiously foolish quote from John Maynard Keynes. Once Fox stuffs the fundamentals of finance into you during the book's first half, the second half lightens-up to be easier reading and sometimes quite witty.

I see from the previous reviews that a college economics class was forced to read this book (which accounts for most of the less-than-enthusiastic reviews), but it is my belief that everyone should be made to read this book before they're allowed to vote for any office higher than alderman or dogcatcher.

Being quite the layman in economics and the financial markets of the world the Myth of the Rational Market was quite the eye opener. Mr. Fox intertwines many different major and minor events throughout the initial formulations of rational thought towards a financial market system. The benefit of his research is that through reading the book, you can begin to grasp the many events that shaped the markets from which we are currently residing. The negative to this massive amount of information is that it is nearly impossible to comprehend all of these events within my single human brain.
The book jumps sequentially for the most part from event to event which lays the framework for omniscient comprehension but the mere fact that there are so many events all affecting each other shows that the market is not only irrational but created from irrational decisions throughout history. The enlightenment that comes from reading the book is only the enlightenment from understand the dire situation our nation and world markets are currently in rather than listening to a 20 year old beauty scientist tell us that the DOW is down due to a decision made by the Spanish prime minister and it will recover sometime next week.
The focus on comprehending the market system in the beginning was brought about by professors and economists in order to further understand the market system and make it more efficient and realistic. Eventually it seems that more people became involved and therefore after the masses began investing their many decisions lead to the apparent irrational motion of the markets. The later researches have been trying to find a way to find their own personal wealth it seems rather than actually causing the market to become more fair and realistic. In the beginning the markets were a matter of discovery and invention. Today, since the framework has already been laid out, the markets are more an opportunity for manipulation toward personal gain.
The largest contributor to the chain of rational thought brought about by the research seems to be that of Irving Fischer. Mr. Fox seems to have quite the liking towards Fischer and his theories and refers to them often throughout his text. The book elaborates on Fischer's methodology and references them throughout other theories within the book and why they benefitted from a foundational thought base initially proposed by Fischer. Fischer's main theme was that of obtaining and analyzing massive amounts of information with all relations of the said information being examined. Some theorists counter by proposing their theories on how to interpret the information and even whether or not the amount and accuracy of information was worth anything at all. Some referenced in the book think that regardless of the amount and clarity of information available, one cannot apply logic to illogical decisions made by mis- or uninformed citizens. Mr. Fox's overall opinion of the irrational market seems to be one of fondness in that he recognizes the current market theory's shortcomings but praises the accomplishments it has made thus far. Maybe he wrote this book in order to bring interest and comprehension to those who haven't yet considered market theory but who one day may make decisions changing the system for the better.

When I read a book it is for one of two reasons: for entertainment or for information. What Fox attempts with this book is to provide information about the formulation, development, and trials of the modern stock market in a way that could be considered entertaining- through the histories and interactions of various instrumental people. In the attempt to successfully pull off both goals however, Fox obscures them.

The chapters appear to focus on different events that led to the rise and fall of the rational market theory and the actors that influenced each event. What made this book difficult for me to read were the frequent transitions between the discussions into their personal lives and how they related to other influential people, which often went for several pages, and the development and consequences of the events themselves. In order for me to derive meaning from each section, I found that I had to frequently re-read several paragraphs and occasionally skip back to previous chapters to review what was said about a specific person or event. Many of the primary individuals in this book, from John Maynard Keynes to Ward Edwards to Irving Fisher, are mentioned in nearly every chapter but under evolving contexts.

This book can provide a good understanding of the forces that shaped our modern markets and the conceptual economic and social material itself is easy to grasp, but this meandering between focuses can make it harder for the reader to grasp it.

My finance professor assigned this book as additional reading for my finance class this semester and I must say I have mixed emotions about it. I do not have a business background but rather an engineering one but even with that I found it difficult at times to follow how theories were developed - I guess you could say it's a sort of foreshadowing of how the Market really works. If you are looking for a history of how the Market progressed from its beginning to the recent events of 2008 then this is the book for you. However, get a pen and paper out because you're going to need it to keep track of the volume of information discussed.
Organization was a bit lacking in this book, I had a bit of a tough time reading it. Coming from a technical background I am used to books following a logical sequence and moving from one step to the next in presenting factual information and proven theories. Fox's book seemed to jump, rather chaotically at times, from one side of the country to the next and from one time to another, when presenting the scholarly record of history. I would have to re-read sections of the book to remember who did what and when and how this or that led to something else. This was obviously difficult at times and the sheer number of people discussed in the book was a bit overwhelming. Having a sort of glossary at the end with a quick blurb about each person and the time they were influential would have gone a long way.
One thing that seemed to be a theme from the author was the constant skipping from one topic to another. This has been pretty well discussed in other reviews so I'll keep it short here but I don't know if this is just because it's easier to keep people's interest (with everyone in our society having short attention spans) on a perceived difficult topic or whether it's just how Fox writes. Either way, if Fox had made use of descriptive titles for chapters instead of pithy sayings about an economist it would give the reader a better idea of what was covered in a given area.
Enough of the negative review now onto something positive: Fox did an amazing job with the detail and breadth of information he covered. I never had a moment when I was struggling to understand how two things were connected (once I remembered when and where it happened). His tracing of the last hundred years of economics couldn't have been a more exhaustive study. I particularly enjoyed how he showed a progression of the economists to define the Market in more concrete, real theories instead of the musings of people who had an interest in the Market. Fox would briefly explain someone's background in say statistics, for example, and how that tied into their theory on the profits in the distribution of portfolios of stocks versus just traditional stock investing. It was the right amount of depth for a person without getting into a more complicated biography of their lives. I also enjoyed the discussion on how present day risk is factored. We all know business/economics isn't a hard science - some things looked at one way can be interpreted differently if looked at another way with slightly different information. All we have going for us in estimating risk is common sense, lessons learned, and how much risk our stomach (and wallets) can take.
I would highly recommend this book for the person looking to gain an understanding of how the Market "grew up" to today but would caution the leisurely reader because this is more than just a weekend book.

There has been great debate over time whether the market can be predictable or if somehow there is a way to enlarge our future. That is the answer everyone wants to know. Many great people have tried to figure this out over time. John Bogle, Michael Jensen, Fischer Black, Eugene Fama, Milton Friedman, Harry Markowitz are just a few big players mentioned in this book. They all played a role in contributing to the explanation and understanding of economics and finance and how the two affect each other. The interesting character stories sometimes quickly move on without a closure for the reader, but Justin Fox does a spectacular job at mentioning the vast array of men who shaped the thinking behind financial studies of the economy. From rational market and investments theories, to portfolio management and decisions under uncertainty, to corporate behavior theory and risk conditions, Fox intermingles all of the characters together in "The Myth of the Rational Market, A History of Risk, Reward and Delusion on Wall Street".
Although I do not have a strong interest and certainly not a strong background in finance or economics, I was quite intrigued when I read the title. I am, as any young adult should be, interested in our financial standing and what will be eventually our future concern. I am certainly not encouraged by what is in the news these days, so I thought reading this book may help me understand why the economy is in such turmoil, or if there is any hope. This book makes me to resist the idea that there is a model or theory that can predict the financial stress we, as the people, are creating on ourselves. As people live beyond their means in huge homes and drive unnecessary luxury cars, the rational thought process plays a smaller role in decisions. Unfortunately, since the decision making of the general population does not include accounting for their future consequences/risk than we will always have an unpredictable financial future ahead. As long as people continue to be irrational and unpredictable in their decisions, so will the financial markets.
There is such an extensive overview in the book of many people who played a part in brainstorming, debating, researching, teaching, and developing models/theories that I would rate this book as a good read. It was at times very difficult follow, especially keeping the plethora of names mentioned throughout the book straight. However, while reading the book, I realized it is not really about each character mentioned in the book, but as all of their thoughts together as a whole. There have been theories which later expanded to inspiration for other great thinkers, and a desire to really understand financial markets. Overall, I thought the book was insightful and gave some broad overview of the history of the market. It tells how ideas were debated and came to be what we know today. Many of the great models / theories are now major concepts that are used to teach and demonstrate how economics plays a role in finance.

Seeing how economist and the insights on the economy are new to me, this was a great read. It was very informative. It goes through various details of each economist, where they started, and how they moved up in business. The author explains various strategies about how each economist tried to beat the market. At times it seemed this was almost possible, but in the long run someone else seemed to find a better way. When going through his explanations of the various economists, one downfall to this book was that the author would jump around. It was seem he was going chronologically by time and then he would switch to a different time. The economist came from different educational backgrounds which allowed them to all have a different insight on the economy. Some were behavioralist and some were die hard mathematicians. It is interesting to read how different they were yet they were all trying to come to the same conclusion.
Through this book Fox explains the different models used in attempts to "beat the market". For any economist to convince someone that they have the right idea, they would set up and name their model, which included a very detailed explanation. However, it may have been more helpful if the author had diagrams or even shown some of the formulas to explain what he was writing about. This would have been helpful for someone new to this type of information. Over time many economist even teamed up with each other.
Over the last few years the market has slowly decreased and some top execs are be rewarded. In the book it discussed Michael Jensen's corporate behavior theory. Many type top execs are driven to be the most powerful and they do their best to obtain the most money whether it's done the right way or not. However, in the midst of all the stimulus money being given to businesses, "to be saved", the top execs once again are the ones getting the bonuses and the stimulus money. Maybe the economy wouldn't be the way it is if they weren't driven by greed and power.
I had to read this book for a Graduate level Finance Class. I'm not a big reader, but reading this book gave me a major insight on the economy, how it started and how it affects day to day finances. Every day people are trying to find ways to increase their stock. This book was great about explaining not only the economist, but how many of the business schools came about. I would definitely recommend this to students in business classes or even to an instructor that is looking for books for his students to read.

The Myth of the Rational Market by Justin Fox was a required text for an MBA finance course I took this semester. I come from an engineering background and my review of the book comes from mixed emotions. As I read through the book I was intrigued by the level of detail that the author, Justin Fox goes into regarding the history of all the `players' involved in the `Market'. The book is filled with history regarding the various economic theories and the contributions of so many. I formed a love/hate relationship because the book goes through spells where it becomes quite exhausting to stay in tune with the various players and what they had contributed. I would have to read this book in short sections probably 2 or 3 times to really digest the massive amount of information crammed into each chapter.

My fore mentioned comments are not to discredit the work Mr. Fox has undoubtedly spent a great amount of time to produce. I would surely recommend the book, but only to a select audience and personality type. For one who enjoys history and has an affinity for maintaining this type of knowledge when diving into a book I think this book could be very enjoyable. The first 100+ pages of the book has so much detail jumping from one economist, mathematician or other contributor to various theories that I had a hard time `soaking it all up'. While I think Justin Fox does a great job of giving credit where due, it's quite possibly this could be given full attention in a separate or perhaps preceding text to another in a series.

It's not until later in the book when Mr. Fox starts discussing Ed Thorp and Warren Buffet that I began to feel like I was "retaining" anything I was reading. What I found most intriguing in the book was the history and the description of the evolution of Warren Buffet. While there may be other texts out there that discuss Buffet's economic genius in more detail this book did much to put Buffet on the well-deserved pedestal in terms of his success as an investor. The book talks about Buffet's evolution as follower/student of Benjamin Graham, then his temporary step away from the market when he felt he no longer understood the impact certain intangibles such as branding affected stocks.

In my opinion this book is most well suited for someone specifically in this field wishing to understand the history, and not necessarily someone wanting to learn the tools necessary to making economic decisions. Fox talks about many mathematical theories but this book offers no explanation to those theories. The engineer in me was waiting to see formulas, graphs, or some sort of explanation on these theories.

There are probably other books out there that would satisfy my craving for explanation of these models and theories, but in my review of this text this is where I feel it falls short.

The Myth of the Rational Market was a nice complement to my MBA Finance class. When this book was assigned in addition to the textbook, I feared the book would be filled with theories and go into detail on different models with charts, graphs and numbers. I was pleasantly surprised when I began reading and realized I could read through the chapters with ease and enjoyed the history and personal details of the economists described. It was interesting how Fox connected the dots describing how the researchers overlapped and crossed-paths through time to develop a current view of the economic environment.

The Introduction captures the reader's immediate attention, as it sets the stage for the book in relevant context by discussing the recent collapse in the stock market. Most people who have had money invested during the past two years suffered the losses that came to light during the recent downturn. Discussing the statements by Alan Greenspan that his ideology and view of the economy was not correct or ended was an interesting set-up for the book because then the book jumps into the history behind these theories and ideologies.

The description of Irving Fisher and his studies propelled by Alfred Cowels is a good example of how the different points of views and studies built on one another and the economist together developed breakthrough concepts.

Samuelson and colleagues developed the idea that price fluctuates randomly and it is not realistic to look at past charting or data to interpret future prices. This is sometimes cited as a basis for the origin of the idea of the efficient market. This was an insightful part of the book for me to see how scientific study by Bachelier and Einstein drove Samuelson's concept of randomness to be applied to the economy. This book showed me how the study of economics and financial markets is truly a science and is constantly dynamic and ever-changing in its evolution. Plus, the reality that there is no absolute and there are always different points of view and perspective.

I enjoyed reading about the development of the market and my views widened as I the background of theories we have discussed in the course unfolded. It was interesting to read about the start of the Dow and how this now brick in our financial framework was started by Charles Dow, who started publishing statistical information on stocks, which then led to Peter Hamilton developing the Wall Street Journal.

Chapter 15 about the CEO compensation made me aware that this is a discussion topic that has been going on for over 20 years. In the past year, it has been highlighted in the news and it was interesting to see what has driven CEO compensation and power during the last years. The explanation how CEO's have had the ability to cause stock prices to overinflate by building confidence and likability with the general public was a good example how the shift in our culture has impacted the stock market.

On a downside, the book had a large number of names that comes at the reader fast and furiously. It was hard to keep up with the different economist and there respective universities. In addition, the timeframe jumped around without consistency or jumped out of the chronological order. I did not see a smooth transition between all of the history and background and how it directly related to our current situation. It was like after the book was written the Intro and Epilogue were added to make the book relevant to the current day situation. It didn't seem to have a strong closing where it all came together.

Overall, I think it is a good book and I will recommend to others to read, as it does give a good history lesson over economics and financial markets. It is just a little choppy and does a lot "name dropping" which makes it hard to keep the people and timeline in context.

Myth of a Rational Market
By
Justin Fox

This book was tough for me to follow because just about the time I started to grasp the importance and background of a character, the author switches characters, time periods, locations, or jumps to a completely different piece of history regarding the topic. His historical background references slowly bring the reader to where the study of economics is presently as compared with the stock market and those interested in its activity. The read was not a smooth transition from chapter to chapter. Each chapter attempts to build upon the previous but ends up being a choppy rendition of the high points of the past 90 years and what affected the financial markets. Or, what the financial markets affected. The author makes a point to show how the profession of economics has attempted to embrace a scientific mathematical component as the foundation rather than a few lucky guessers that beat the market somehow.
This book briefly touches on the sociological and psychological responses expected and realized by rational and irrational individuals and how they differ or are similar to how the masses respond or act as a whole. "Playing" the stock market used to be considered gambling only for the rich, now it is a considered a game by some, a necessity of life by others, and still out of sight and out of mind by others.
The market doesn't follow a certain set of rules; action and reaction do not apply here. Common sense does not come in to play here. Cause and effect is out the window because the market indicators as a whole are based upon someone's speculation as to what a company is worth and their stock price can rise and fall based upon fear and speculation as to what the unforeseen future holds. The current stock price of a company is not an indication of a successful administration or strong leadership. It is not even a reflection of a company's ability to be financially sound in their day to day operations.
Mr. Fox gives the reader the indication that while some investors have done well by diversifying their portfolio, no one gets rich by following that path. That is the safe path though. He indicates that the best way to safely traverse the market is by strategically setting your parameters to get in and out of a stock by timing the upswings. This will keep you from riding a decline completely to the bottom but also prevents you from reaching the highest maximal peak as well. Thus in turn, producing better return results than the market as a whole.
I do not read much for pleasure as I prefer to be active and in motion as compared to sitting and reading. This book helped me sleep anytime I picked it up. That also probably contributed to my choppy recollection because I realize it might now be possible to sleep read instead of just being able to sleep walk.

This book is a great "thinking" book. It gives a historical view of the markets and who influenced many of the theories and who developed many of the models that continue to be used to this day. Justin Fox does a good job of explaining some of the "holes" in the efficient market theory. If everyone was acting on information that is available to everyone else, then it would be very difficult to make money or beat the market. In addition, many times investors do not act rationally when it comes to money and their investment decisions. I think the book did a good job of illustrating that many investors do invest emotionally at times which is not always a rational way to invest.

In addition, the book does a great job of distinguishing the difference between economics and modern finance. It explains the growth from economics (non-quantitative) to a much more quantitative look at the markets and how they operate. The book also is very efficient at explaining how the different educational institutions viewed the markets and what was deemed acceptable. This included the different viewpoints of professors at the University of Chicago, MIT, Harvard, and Yale.

Some information that backs up Mr. Fox's view is the current market environment. Although unemployment is high, our national debt is high, and the value of the dollar is dropping - the market is doing relatively well considering these factors. If the market is a true reflection of the economic environment then it would be fair to say the market may not be doing so well at this point in time.

To further support the fact that investors are not all rational and informed, there are many examples in the book regarding values that can be found in the market. Warren Buffett is an example of a man that continues to find buys in the market that many investors do not see. One of the reasons for this is that many investors get emotionally involved with their investments. There are certain opportunities that do not seem glamorous enough for some. A large, blue-chip stock that pays a great dividend may not be the type of investment that many like because there is not enough growth potential to the stock. It is also noted that speculators often have influence on the market. Many are taking extreme risk based on the potential of some investments. However, this would not be considered a rational investment based on the great risk and potential losses that could occur. Although Mr. Buffett is considered a master investor (as he should be), he was not immune to the great market declines of 2008 even though he likely has more knowledge and expertise than the average "rational" investor.

The book includes great historical figures in the financial world; however, the first part of the book was difficult to follow at times because of all of the different individuals. There was a great deal of information crammed into the book. For example, the book touches on Irving Fisher's idea that the market had reached its highest point to Myron Scholes and Fischer Black working on options pricing.

My interest was increased the most as the book entered the chapters related to more modern finance. It was interesting to look at Buffett and Benjamin Graham's view of analyzing different stocks and how these views are greatly accepted and often flourish today. The book was efficient at looking at Alan Greenspan and how he viewed the market. Although he saw signs that the housing market may have trouble, many believe he should have done more to ease the pain of the market crash.

In conclusion, the book was very informative and is effective in explaining how viewing the markets has changed over the years and who influenced the different schools of thought. It may have been easier to read if Mr. Fox had lengthened the book to allow the different influencers of finance to have more detail included regarding their views, however, overall I felt the book allowed me to better understand where we came from and where we may be headed regarding the market.

My instructor in my finance class assigned this Myth of the Rational Market book to everyone in the class so that they could read and comprehend the topic of Wall Street. I did read the book; the comprehension part was a different story. For the first part of the course I read the book almost religiously. The instructor promised us some questions from this book on the midterm exams, and thus I read.

I am not an American, I am an international student. I do know though, some things about Wall Street; I graduated from a college in the United States with an Econ degree. I have at least a minimum knowledge of what it is. What I did not know was the history of Wall Street. I was excited at first to read this book, the first two or three chapters were somewhat educational. The way Justin Fox narrated the storyline with his dry and nearly sarcastic tone kept me motivated. After reading the first few chapters, I realized there were many characters and names mentioned in this book. I knew at that time that the book would provide quite a challenge for someone like me. I am one of those guys who can't even remember the names of many of their friends, ex-girlfriends or uncles let alone some strangers from the 19th century America. I am pretty sure there are many readers out there who are just like me. Reading this book is like getting stuck in a loop. Many of the names keep popping back and somehow Justin Fox found the connection between all the characters, kudos to Justin Fox for his extensive research for this book.

I must say this book is well-structured. It mirrors the life cycle of a human being. It begins with the birth, follows by the growth, the maturity, and ends with the death. Justin Fox managed to incorporate all of the phases nicely; in other word this book has a good flow in it. Each phase has some major characters in it. The early days was filled with many facts from Irving Fisher, Fred Macaulay, and Holbrook Working. These people were some of the brightest thinkers in the history of this world. Some of them struggled trying to explain to the public how a stock market worked. They tried to proof that many of the events in the stock market were not caused by just some plain luck. They believed there was something that made or induced these events, and the only way they could prove this, was to come up with some kind of scientific measurements or formulas. Some of these men got what they wanted (or close to what they wanted) and some just failed. Justin Fox did a good job explaining the contributions of each of the character in the book. He even threw in some "fun facts" about the character that kind of helped us understood why a character did what he did, the reason behind a formula, etc.

Overall, this book is a decent book. It provides a deep and structured story of Wall Street. It tells you many minor and major events that happened in the past and provided the reason behind those events. It comes with a caution however. If you are not comfortable or having trouble remembering multiple names or just plain annoyed with repeated characters, I would not suggest this book to you. No offense to the author, Mr. Justin Fox. But if this book had been printed in yellow pages, I would have mistaken it for a phone book.

Justin Fox's "The Myth of the Rational Market" could be considered a detailed history lesson on the evolution of economic theories. An interesting read for finance buffs and amateurs alike, the "Myth of The Rational Market" leads the reader from concepts of early economic ideologies into those on the market of the present day. Through his thorough descriptions of the key players, events and various elements involved in a variety of market theories, we can see the ever-changing and winding path that has led to today's teachings in economics. The controversy of whether we are faced with an efficient market or an inefficient one is the primary concern of the book and Fox does an excellent job of setting the scene for this constant "battle." His chronological analysis helps the reader see how interconnected and related the theories are to one another. It becomes clear that while the advocates of the opposing viewpoints criticize each other, none of them would have come to their respective conclusions and solutions without the other.
I particularly enjoyed Fox's discussion of the academics in support of the inefficient market. By detailing their background in behavioral science and explaining the ways in which they applied these concepts to finance, the reader can see the major impact that human behavior has on markets. It is absolutely impossible to ignore the fact that individuals have an impact on the market and Fox does an exceptional job of presenting the work of theorists who have done a significant amount of research on this subject. He also spends a good amount of time discussing the many variables involved in the market. There is such a plethora of things that can have an affect on our economy, so how can one possibly believe that the market is efficient or rational?
One complaint I had with this book was Fox's writing style. He had a tendency to sporadically jump around, leaving the reader confused and unable to determine how we had moved on to the next topic. Though I appreciate his detailed descriptions of the many theorists and academics in the book, the sheer amount of information presented was slightly overwhelming. As someone with very little experience in finance and economics, I often found myself having to re-read paragraphs in order to keep names and ideologies straight. Though I understand that his intention was to give a historical account in the order in which the events occurred, it might have been easier to comprehend if he had made an attempt to cluster information from certain individuals or ideas together.
Overall, the book was a worthwhile read. Read as a supplement to a graduate level finance class, it gave me a different perspective on the different theories, formulas and solutions that we have used throughout the semester. I was intrigued by the evolution of these theories and it was interesting to see the role they played into today's economic ideologies. Fox's conclusion that the traditional rational market theories have fallen apart is well supported and he uses everyday comparisons to get his message across. Ultimately, he makes the parallel between the crash and burn of these theories and that of the market itself. One can't help but stew on this stimulating conslusion.

The Myth of the Rational Market, by Justin Fox, is an in depth timeline of how the financial system in the United States came to be. It discusses the development of finance as a field of study, the stock market and its ups and downs, and the key players that made the field of finance and the financial theories in the U.S. possible. Though sometimes disorganized, Mr. Fox adequately explains how and why the American capital generating machine came to be. The main purpose of the book is to explain how America's financial system, particularly the stock market, got to where it is today. This could have been achieved with a simple timeline or at the most a one hundred page book, including a couple of pictures. However, The Myth of the Rational Market goes into greater detail about the individuals who made it all possible. It discusses their education (or lack thereof), their theories, and who mentored them and who they mentored. Because of this detail, the reader is able to get a better sense of the rationale behind the theories presented and understand that only a few key individuals made the most profitable and successful financial system in the world.
Because of the detail that Mr. Fox writes about each economist, financial analyst, professor, or other contributor to development and success of the stock market, it is difficult to discern the underlying position that Mr. Fox seems to take: that market is still flawed. Even after all the theories presented from Irving Fisher's survival of the fittest idea to Harry Markowitz's downside risk to Miller and Modigliani's precursor to shareholder value, the market is still not perfect. People are greedy, mistakes are made, and money is lost. Though that has always been an overwhelming part of the stock market - risk - the market is still sometimes viewed as a rational entity. Justin Fox is desperately trying to point out that it is not. The market is anything but rational. Fox points out that the market does and will continue to correct itself when the pendulum swings too far to either side, but because it is dependent on people, it cannot be rational.
One of the most striking similarities between this book and the market, is that neither one are rational. The Myth of the Rational Market has a timeline that is prevalent throughout the text, but it goes back and forth between the ideas of each of the people mentioned in the book. The best way to describe the timeline is to turn it on its side. Every time the book backtracks in time, the line goes down; every time the book moves forward in time, the line goes up. By the end of the book, the line will look very close to that of the stock market if graphed in its entirety. The reader can almost even see a correlation between bad economic theories mentioned by Fox, like those before the crash of 1929, and the market itself. Because the book jumps back and forth between one financial player and another, one theory and another, and one time period and another, the reader becomes lost in trying to discover what happened to a particular person instead of his overall contribution to the success or failure of the market. For this reason, the book is not an easy read. It takes time to follow each theory and person and figure out where their ideas come into play. I do not suggest this book to anyone who has never heard of the stock market. The book does give a rather complete story of the market, but should only be read by intellectuals wanting to further their knowledge of the market.

The Myth of the Rationale Market gives a history the investors that shaped Wall Street. Written by an editor who has worked at Fortune and currently works for Time, it starts with the early 1900's and chronicles the frame-work of investors, their lives, and how their theories changed efficient market theory. For someone who wants to know how market theory was developed, this is a great read. As someone who is not a financial guru, I knew most basic market principles, but did not understand where they came from or the reasoning behind them. This book breaks down major economists' theories, tells their academic and personal history, and how they developed their market theory. This book shows how many economists thought they had market theory figured out, only to be proven wrong. The book does not give a new theory into how markets behave, instead just helping to understand the old theories and how they fit into the stock market framework, and what theories have proven wrong by the market.
This is a good book for someone who just wants a basic understanding of how the market developed, the history and how it works. It is not full of equations or formulas. It doesn't teach you how to beat the market. It does, however, provide a better understand of how it works, and sheds light on many of the myths that surround it. Many investors have thought the stock market is always rational and predictable, and that great investors know a stock's value, when in reality it is not always a predictable, rational market.
The book details how in the early 1900's, when investment information first became easily obtained and the thought that went behind the first theories of stock valuation. As the book progresses, it tells of the investors that changed the line of thought through the Great Depression into the 1950's when most stocks were individually held. In the 1970's, investors started to have their money placed by institutions as commercial investors had now began to use quantitative finance methods. It tells how options and junk bonds came into play, and who first started hedge funds.
While this book is a good read for anyone interested in the history of the stock market and the economists who lead to modern thought, it can be a bit of a choppy read. It bounces back and forth between numerous investors and can be, at times, hard to follow and put together the plethora of information it provides. It does show how complicated the stock market is, and even if you understand it, that doesn't mean you can beat it. Most of the smartest, most famous investors have been proven wrong numerous times along the way. This is the book for anyone who is truly interested in who developed what theories and how the United States financial market became what it is today. It provides the history behind great investors, as well as how stock options, hedge funds, and other financial vehicles emerged, and gives it in terms that the average reader can understand.

In Justin Fox's book The Myth of the Rational Market, he quotes Richard Thaler who once said, "young economists are taught these modern concepts (equations, diagrams, and the like) but rarely go back and read the surroundings text." Thaler went on to argue that, "it is time to stop neglecting the words and time to start updating our equations to include these behavioral factors." This book is an excellent tool for business students because it includes the background stories of how stock market principles were crafted to comprehend the market in a mathematical sense. This background information is not normally included in Finance and Economics classes, and just as Thaler recommended equations incorporate behavior factors, it is important for students and others working in the industry to know what behavioral factors have been addressed when studying and adapting to the market.

The book introduces an extensive list of characters in the aforementioned evolution including Kenneth Arrow, Louis Bachelier, Fisher Black, Warren Buffet, Eugene Fama, Michael Jensen, and Harry Markowitz. All of these characters are linked together to give the reader a full understanding of how one individual's accomplishments are connected to another's, and the impact these associations generated for the market. The principles involved are still used by individual investors and market managers today, and will most likely be the foundation for future students' theories. It was extremely convenient to have so many topics covered in one book.

Since recently purchasing my first a home, I found the background of the Case-Shiller indices particularly interesting. Fox explained that Jeremy Siegel and Robert Shiller met in line waiting for their physicals when they arrived for graduate school at MIT in 1968. After the 1987 crash, Shiller worked with Karl Case to determine if real estate was prone to bubbles. The result of this research is now a comprehensive data series of indicators on home prices in America. As a business student, it is interesting to read cases where chance and networking link to create great rewards in a certain field of individual students. Fox's book is filled with stories of people determining a great idea after a car ride, or at a dinner party, or at a conference, and it makes the history of the market educating and interesting.

Personally, one of the rewards I experienced from reading this book was having a general understanding of key economists, and being able to remember their respective accomplishments. For example, I watched CNBCs special "Warren Buffet and Bill Gates" where they spoke to Columbia graduate students on the state of the U.S. economy. Warren Buffet many times mentioned the lessons he learned from Benjamin Graham. From reading this book, I understood that Ben Graham was Mr. Buffet's mentor and part of his success was based on structuring his investment business as a partnership. In addition, I ascertained that Ben Graham was one of the first to use and write about arbitrage in Magazine of Wall Street. His ability to, "find the same thing selling at different places, buy it at the low price and sell at the high price," can make people very rich. These practices that are now used daily each has its own roots, and Justin Fox's book enables readers to better understand their environment.

The news this past year has highlighted numerous unethical leaders and companies who have gone bankrupt. I enjoyed that the book had a couple of chapters concentrating on what drives CEOs, and how greed for higher salaries and earnings can and cannot affect stock prices. In addition, it detailed how stock prices can be manipulated to give a different perception of a company. I think these concepts and maneuvers are important to study, especially when the end result can create a multitude of negative repercussions. Michael Jensen's model of corporate behavior was explained in this book, including what he believed was missing from his initial model- "integrity and honoring your world." Jensen mentioned that leaders need to honor their promises and commitments, acknowledge failure, and clean up messes. That concept in the book could be applied to assist individuals in various business situations. I understand that many tools are available to better understand the market and make stock prices correctly correlate with businesses' profitability. However, if used without integrity, more harm than good will be done for the stock market, investors, the company, and the economy. Overall, I learned a great deal from Justin Fox's book and would recommend the book be used in MBA classroom settings. I also believe many individuals working in the financial market would enjoy this book, especially the last couple of sections, where many key economists reflect on our current financial situation.

This book is everyman's version of how "belief systems" instead the "scientific method" led directly to the financial panic of 2008. The economists who believed the market would always be "right" come out smelling like Galileo's protagonists in Physics 500 years ago. I would preferred a little more Mathematics, but that would put off many readers.

Let me start by letting you know that I purchased this book while taking a business finance course at Oklahoma State University. I don't have any extensive economic or financial knowledge - other than the four courses that I've completed so far towards my MBA. And my background (and undergraduate degree) is electrical and computer engineering.

With that said, I started reading this book without any expectations - I simply thought of it as a reading assignment for my class. My first impression of the book was fairly pleasant; it wasn't too boring, in fact at times it was somewhat entertaining, and it didn't seem to require an extensive understanding of economic theories; but I will say that a better explanation of some of the theories would have been nice. A short paragraph explaining an application of each theory would have helped me out a lot, then again this was pretty much the first time I've seen most of those theories.

The book gave a broad history of all the notable scholars of economics starting in the late 1800s with the great Irving Fisher and continuing through 2007 with Alan Greenspan. It was somewhat in chronological order, but tended to jump around a lot. I think this was mostly due to overlap of time periods between scholars. I found the book to be long at times, especially with some of the terminology and theories that are talked about. However, I really enjoyed reading about the different economic "experts".

I found that the "Cast of Characters" section was extremely useful while reading. It lists all the economic scholars that Fox covered over the course of the book. I constantly found myself referencing this section over the course of the semester when I couldn't remember the accomplishments of one "character" while reading about another. The extensive index was also very helpful when trying to find specific theories and people.

To those with experienced economic or financial backgrounds:
You'll probably get much more out of this book than I did. Even though I don't think the reader requires a vast economic background, it would probably help. Fox analyzes the theories from different economic "experts" and points out the pros and cons. Half of the time it was difficult for me (with no economic or finance background) to follow because I wasn't familiar with the terminology and applications of theories. If you are interested in a particular theory, you'll be able to quickly find and reference it via the index.

To those with little or no economic or financial background (like me):
This is still a great book to get familiar with the scholars who altered the way the stock market is viewed. It certainly gave me an appreciation for statistics; in fact, before I read this book I had no idea just how much statistics were used to develop market theories. I also think this book will help with your future MBA classes because you'll know why and who developed the economic theories that are still widely used today. Again, with Fox's review of each theory, he outlines the strengths and weaknesses and, for the most part, allows you to draw your own conclusion. Either way, it gives you something to debate about during classroom lecture.

I gave the book 4 stars instead of 5 only because I think it could have explained the applications of theories a little more. A simple picture probably would have sufficed for me - but don't forget that I have no economic background (only an engineering degree). Other than that, I think this book is definitely worth reading if you're thinking about getting an MBA or another economic or finance degree.

The Myth of the Rational Market provides an excellent historical perspective of all the economists who have contributed to and struggled with understanding financial markets. While reading, you will feel like you are being guided by a true expert with inside knowledge and personal contact with men from 1905 to 2008. The author takes time to explain details of both the men and the theories behind market analysis.
One of my favorite excerpts was from the Columbia Business School debate between Warren Buffett and Michael Jensen. When faced with the question of the success of coin-flipping orangutan millionaires, Buffett keenly answered the importance of examining the zoo that these primates emerged. I thought this was brilliant and an enjoyable tale from a past debate.
The book makes it easy to follow "the why" of the economist family lineage. Mr. Fox explains the original authors of theories, then their students, then their detractors, and how each has a place in present day market analysis. This provides a broad understanding of how, where and why each theory originated. This form of analysis provides a thorough understanding of the roots of financial theory.
I also enjoyed learning about some of the non-traditional routes for some whom contributed to market analysis. For example, Mr Fox tells the tale of Benoit Mandelbrot, an IBM Mathematician, who emigrated from France and hid from Nazis. He does this for a multitude of financial analysis contributors. These details make the book an enjoyable read.
Mr. Fox also describes the beginnings of many of our finest business schools in the country from the level of initial recruitment. He details how these scholars defined their science and produced scholars that took up their cause or fled independently to other universities.
I would recommend the book highly to all finance students. I would also recommend it to anyone who wishes to gain better insight into the birth of mutual funds, theories behind diversity or any other finance terms that you wish to learn the origins and the men who created them. The book will provide substance to finance terms that enable one to better understand portfolios, mutual funds, bonds and the market tools that follow these investments.

I was intrigued when my Finance professor assigned The Myth of the Rational Market (TMRM) to our class as a supplement to the textbook. I'm something of a history buff and thought it might make for interesting reading. I was disappointed. The book has a bit of an identity crisis. It's likely a little too light for serious students of the subject, yet a little too technical for entertaining reading. Just as I would get familiar with (and interested in) a subject, Fox would move on to a new person. It became a little frustrating and I don't think I could recommend it to the casual reader. TMRM became the book I made myself read at least a little of each week, and that is unusual.

This isn't to say there weren't entertaining and educational parts. Justin Fox does a nice job in bringing the complex topics of efficient market theory, option-pricing models and CAPMs down to a layman's level. His research is impeccable and he highlights all the major players; Black, Fisher, Friedman, Keynes, Modigliani and Buffett, as well as a large cast of supporting players. Fox does a much better job, in my opinion however, with more "modern" economic figures than with the "founding fathers". His discussion of Mac McQuown's work at Wells Fargo to develop index-based mutual funds helped shed light for me on modern banking methods, and I now understand Michael Milken and the concept of junk bonds much better than before.

In both the "Early Days" section and the "Rise of the Rational Market" section, I felt like I was trying to drink from Niagara Falls with the deluge of names, places and theories. Without some kind of a personal reference to dates and eras, I felt all of the information simply washed over me. It wasn't until Fox began his "Conquest of Wall Street" section and through the end of the book, that I became truly interested in the subject matter again. I was able to connect the development of risk controls, hostile takeovers, stock options and the study of human nature to my own observations. My favorite chapters were probably those on Warren Buffett and Alan Greenspan. Fox seems to really dig into the subject of both men with a little more interest than many of the previous. I was able to satisfy my desire for details on each without feeling overwhelmed.

The Epilogue (The Anatomy of a Financial Crisis) was likely the most useful and interesting part of the entire book in my opinion. At last, this was the chapter I had hoped the entire book would be. It was simple, entertaining and educational. I finally understood a lot of what has gone on in the world of Fannie Maes and Freddie Macs. Subprime mortgages and Ponzi schemes became much clearer. I only wish the entire book had been written at this level. In the end, there is no clean wrap-up from Fox, but none should be expected. The financial market is an ongoing subject.

All in all, The Myth of the Rational Market is a decent overview on the subjects of the efficient market theory and Wall Street. It offers no answers and is difficult to slog through at times. If you can make it through the first half of the book, you will likely enjoy the second half much more. And you will find yourself educated, even if somewhat overwhelmed.

I read this for an MBA Finance class. I had no previous financial or accounting background and I was able to make sense of this book. The Myth of the Rational Market is a semi brief history of the world of finance. It's got the who's who of finance. This book is a great intro for anyone looking to learn about finance or investing. Although I have a background in math and economics, I have never learned much about how the theories and equations came to be. TMRM includes the people behind all the formulas. We are all semi familiar with the Fisher equation but now you can read about Irving Fisher's research and cohorts that helped him finalize his now `famous' equation.
TMRM is a slow, slow read. One page will take several minutes to get through and will need to be reread 2-3 times to understand the content. (At least for me). Several of my classmates agreed. This is definitely not a textbook but the content is still quite a bit to absorb. I read this book in a couple of months, which is what I would recommend to other readers. Do not start this book if you won't be able to finish it soon. Everyone seems to overlap and you need to remember the order of events to help make sense of things.
While I felt like TMRM was a bit of a crash course and didn't know what the efficient market hypothesis meant a few months ago, I think even experts would enjoy this book. It may disprove or enlighten how you view market theory. My favorite analogy was how studying economics is not like the science of studying physics. We can predict velocity with certainty but predicting the markets is still just an educated guess. The chronology should be interesting to all readers. I really enjoyed reading about the people and their research dynamics more than learning about the `finance stuff.' I personally have a better time learning new things if I learn them in some kind of order. The index in the back is also really helpful if you want to go back and review something. Fox is an interesting writer and keeps the material from being a total bore (Sorry, this did not ignite a passion for market theories in me). His personality as a television journalist shines through in his writing style.
TMRM could not have been published at a better time as we continue to see very irrational behavior in the finance world. This book is a great compliment to The Wall Street Journal. Having read this book I feel that I grasp what the WSJ is talking about on a deeper level. TMRM will change how you listen to the evening news reports about stock markets and international trade. It will quickly become obvious to you that the reporters are not familiar with this book.

My recommendation:
If you are an undergraduate or graduate student in finance, economics, math, or accounting, look into reading this book. The base knowledge you already have from your coursework will have prepared you for this level of detail. TMRM can supplement what you've already learned with the history and evolution of this whole realm. It will also give you a better understanding of the world you will be entering upon graduation.

If you are a business professional or investor, I would also recommend this book. I imagine it would be a much faster read since you are familiar with the jargon. TMRM will offer you insight and perhaps change your mind on a few things regarding efficient markets.

This book does a good job tracking the different views about the behavior of the stock market that people have proposed throughout the history of the market. Beginning with Irving Foster's stolen manuscript, eventually re-written into "The Nature of Capital and Income," which details the time-value of money and stressed that the value of an investment is the income that it will produce, and moving on to Macaulay and his exploration of the behavior of stocks as a random walk through Harry Markowitz's decision to use the mean and variance as tools to determine the expected return and risk of a certain stock, the book explores the early economists and introduces their theories in a logical and well thought out way.
Moving steadily towards present day, Fox continues his examination of Wall Street's most prevalent economists with a look at Eugene Fama and his realization of one of the most prevalent views on the stock market, that it is hard, if not impossible to outsmart and beat the market over an extended period of time. Fama noticed that "sophisticated traders" who read charts or who relied on fundamentals would notice any nonrandom patterns in the market and attack them in groups, with the end result being that these patterns went away. Because of this, Fama argued, any success based of off these techniques would be fleeting and make it difficult to sustain gains above what the overall market experienced.
From Fama's findings, the book moves on to an idea developed by Edward Renshaw and Paul Feldstein, that of a mutual fund that simply follows the Dow Jones Industrial Average, the basis for the first unmanaged funds that would not try to beat the market, but rather shadow it. Although this idea wasn't immediately met with success, it did spark a rebuttal by John Bogle, who argued that there was no need for a fund that simple tried to match the performance of the market, as many major funds had been beating it consistently since the 1930's (Bogle's response came in 1959). As time progressed however, actively managed funds began to change their values and less than two decades later, Bogle launched the first index mutual fund.
Fox details the exploits of numerous other economists in his book, but my favorite is his description of Warren Buffet, a man known for his incredible ability to beat the market over and over again, year after year. Fox's recap of Buffet's famous rebuttal to the random walk theory by describing a group of coin flipping orangutan millionaires (yes that's right, coin flipping orangutan millionaires) and how people would eventually be convinced that these orangutans possessed some special skill and would study their habits is my favorite part of the book. Buffet goes on to explain that this random walk method is not why some people are more adept at beating the market than others, but rather that certain people simply follow specific disciplines and are able to beat the market that way.
Overall, Fox's book explores a wide variety of subjects and different points of view on the inner workings of the stock market as a whole. The book gives the reader a good understanding of how views on market behavior have evolved and built upon one another throughout history and would be a good read for anyone interested in investing or who simply wants to know more about why the market may behave the way it does.

Reading Justin Fox's The Myth of the Rational Market felt a lot like watching a fast-motion street scene. A huge cast of characters rushed through the book, sometimes appearing for only part of a page before rushing off to be replaced by a new actor. The rational market sits in the background of all of this frenzied activity like a billboard in our scene, constant amidst the flurry, while other theories flash on and off like traffic lights in the foreground. They are simultaneously constant yet changing, and alter the behavior of the people that zip through our scene. This sense is due to the author's rapid fire pace of writing. Unfortunately it often made it hard to keep track of all of the different finance professors and economists mentioned in the book.
The sub-title to the book "A History of Risk, Reward, and Delusion on Wall Street" suggested to me that this would not just be a history of the academic debate over the rational market hypothesis. Instead I expected that it would present the hypothesis and then detail the consequences of actions people took based on their acceptance or rejection of that theory. I was largely mistaken. The body of the book focuses on the development of the rational market theory. It details the academic challenges to the theory and the ways that it has become more and less fashionable. This is woven through with details about the professional development of the men who were involved in the debates surrounding this. (It just occurred to me that I don't recall a single woman being mentioned in the book).
The epilogue includes a brief history of the development of the securitization of the mortgage market that led to the current economic crisis. There is a brief mention of the role that collateralized debt obligations played in the development of the derivative securities market. Disappointingly it stops before fully explaining the way that the CDOs contributed to the interlinking of the banks and other financial institutions involved in the crash. Because of the detail involved in the book I believe that Mr. Fox had begun the book well before the crash and had felt that it would be incomplete if it did not include an explanation of the crash. This portion seems hastily written and lacks the detail that the body of the book contains.
After finishing the book I feel like I have read a Cliff's notes version of a history of American economic theory. I can recognize a lot of new names, but don't feel like I spent enough time with any of them to be comfortable knowing their contributions. I can recognize the names of several theories of pricing models, but don't know the equations or the details behind them. Ultimately this book is a beginning, an introduction to history and finance, providing a starting point to begin deeper investigations into history or finance. Readers who want to read this book and feel like they have a great understanding of how we got in the mess that we are in will likely be disappointed.

Maybe it is hard to spice up this subject. It is comparable to Fortune's Formula and makes a nice companion. This book is comprehensive, but for many readers that will mean covering old ground again. For me, that meant some boredom to get at a few bits that were really interesting. To others the whole book will shed an enormous amount of light on this subject. I don't know they teach in MBA programs now, but for earlier minted MBAs who had been spoon fed a lot of flaky theory, this book will be very useful.

I think it is a very important book for anybody involved in the active money management. I really enjoyed the book because it explains that the rational market theory started as a hypothesis or a scientific model that oversimplified reality. As the model became more popular, many of its nuances and assumptions were lost. The rational market hypothesis became a theory.

One of my biggest philosophical difficulties with the efficient market theory is in the fact that it claims that it is not possible to beat the market over the long term. In the past, I was fortunate to work with several top-notch portfolio managers. These managers were able to beat the market over the long term. What separated them from other managers was that they had clear strategies for analyzing and trading stocks. Specifics of these strategies were not common in the industry. It took these managers years to develop their strategies. After they developed the strategies, these investors did not jump around to other strategies, even when prices of stocks in their portfolios were going down. Their innovation in developing their strategies and focus on using their strategies consistently allowed them to outperform the market dramatically over the long term.

Looking at achieving excellence from a wider perspective, I could not understand why people could excel in other endeavors (business, entertainment, sports, etc.) by applying their unique strategy, superior talent, hard work, or a combination thereof. However, according to the efficient market theory in investing one could beat the market in the long run only by chance. In my opinion, Lance Armstrong did not win Tour de France seven times just by chance; and neither did Warren Buffett put up his investment performance by pure luck. Both of them have relied on their long-term strategies and endurance in the face of difficulties to win in their respective fields.

Like in other areas of human pursuit, in investing it is difficult but not impossible for a person or a firm to reach excellence and beat competitors in the process. In my understanding, three necessary conditions for this include identifying a market niche in which one has very deep knowledge, developing a clear and consistent strategy to dominate the niche, and applying this strategy both in good and bad times.

Justin Fox, thank you for writing a stimulating and thought-provoking book!

This is a good, journalistic account of a failed scientific revolution with substantial public consequences. Fox's goal is not a detailed scholarly history but rather an accessible popular account that gives the general public an idea of how these ideas evolved and why they had such impact. By the late 1960s, a number of economists had accomplished work that seemed to indicate that financial markers were "rational." Specifically, this meant that stock prices reflected the actions of well informed rational agents maximizing utility and that while individuals departed from rationality, the market as a whole was rational and stock prices reflected "fundamental" features of the status of companies. From this conclusion flowed many interesting consequences. The rational market hypothesis allowed the first calculation of the value of options. In turn, this seems to have encouraged the development of financial instruments such as a variety of derivatives based on the idea that properly constructed derivatives would allow management of risk more efficiently than market regulation. The idea that CEO performance should be evaluated by stock price value is also partly a result of the basic hypothesis. Propagated throughout American departments of economics and many business schools, this tool kit of ideas was an important contributor to the deregulation of financial markets and the general enthusiasm for untrammeled markets. In the last couple of years, the failure of these ideas become apparent in a nearly catastrophic fashion.

Fox makes clear, however, that problems with this set of ideas appeared well before the present crisis. A number of important economists demonstrated flaws of different aspects of the models. The influential Joseph Stiglitz disproved the strongest form of the efficient markets idea, and Robert Schiller pointed out both logical flaws and presented data contradicting the model. Eugene Fama, one of the principal architects of the theory himself presented data undermining the model and had to introduce ad hoc modifications that compromised the integrity of the model. Many aspects of these models were based on data assumed to follow normal distributions but this assumption proved to be incorrect. What accounted, then, for the remarkable success of this set of models in the academy, earning some of the originators Nobel prizes and generous consulting fees? Fox's answer is a combination of scientific hubris and institutional defects. He suggests that many of the originators of these ideas were simply intoxicated with their achievements and driven by what they perceived as the logical and mathematical beauty of their concepts. Many also worked within business schools where there was an emphasis on methods for investing and management, which these ideas seemed to produce, and a less rigorous intellectual environment than regular economics departments. These are very good points, though I suspect that Fox underestimates the importance of ideological factors. As he himself points out, many of these ideas emerged from the University of Chicago, where the dominant figure was the brilliant but somewhat nutty libertarian economist Milton Friedman. In a classic vicious cycle, the efficient market idea and its progeny were both driven by and a driver of the general conservative tone of American life in the past 30 years.

While Fox does a reasonably good job of explaining the basic ideas but I think the exposition could have been improved significantly. How many people, for example, really know what constitutes a normal distribution? Fox understandably avoids equations but a few well done figures and simple equations would have enhanced understanding considerably. Fox also doesn't discuss well, I think, one of the major reasons why these ideas had such power. The last 50 years were in many respects a period of relative macroeconomic calm and stability in financial markets (The Great Moderation), at least as compared with the first half of 20th century and late 19th century. Many interpreted this relative calm as a result of success of market self-regulation. As conceded recently by Robert Lucas, himself one of the originators of this set of ideas, the relative calm had a great deal to do with the success of New Deal era regulation and activist central banking.

Whilst an entertaining overview (the author is a journalist) and a useful fly-by of many of the major developments in finance, I was left wanting more. The book will provide you with a good, although high-level, summary of these developments, but it failed to come alive for me. I much preferred Peter L. Berenstein's Capital Ideas, which covers much of the same material.

Being a stalwart and experienced supporter of the intrinsic-value approach to financial markets (courtesy of Ben Graham and Warren Buffet), I am consistently baffled by the support of rational and efficient markets. My finance classes attempted to teach me 'Modern Portfolio Theory' as well as Beta and CAPM models, and professional money-managers (who use these metrics) still fail to beat index-funds over any period of time greater than a few years (if they can even beat it for that long). People continue to trust these institutions, however, and they suffer needlessly because of it. I enjoyed this book because it answered the why's and how's I had regarding the injustice that allows the false-promises of the few to profit off of the hard-work of the many.
This book doesn't attempt to convince people of either rational or irrational markets. It simply gives an account of all the key players, their contributions, and (if they're still alive) their current beliefs. If by the end, however, the reader still believes in efficient markets, he should probably re-read the book or avoid financial markets altogether (other than low-cost index funds) for the sake of his own posterity. Or he can invest other people's money.
Either way, 5 stars for being extremely enjoyable, informative, and historically accurate. Thanks Justin Fox.

When I ordered this book I thought - great, now there is a book that states my long-held belief that markets aren't rational and no math equation can explain them. My greatest goal was to read it and if it was any good to send it to my econometrics teacher with a note: 'Hey, remember all the things you tried to teach me about the markets and I was so reluctant to learn - you know what - they were all wrong. Read this!' But unfortunately she wont be getting a copy...

The reason for it is that it's most and foremost a HISTORY book. It addresses all the questions about who and when brilliantly. You can feel that the author has put in a great effort to ensure that all the details are there and for it he deserves a good amount of stars on the valuation. Don't think that a book on development on any theory can get much better than this. It even manages to do a thing that history books should do but seldom manage to - it's neutral. Yes, sure, the basic conclusion is in a title but for most of the time the book is stating just plain facts. For me though that was also the biggest drawback, as it didn't come in line with my expectations. What I wanted to get was both things: who did what and why it was wrong. Yet I got just the first part. Maybe it's not book's fault but mine for expecting different thing of it. But I'm not entirely sure that I'm the only one who expected that...

And another word of warning, because it's mainly a history book, it's just as easy read as any other history book. I mean, I have an economic background and I was struggling to get through it. So for a person with different education, who just wants to understand what went wrong, maybe it isn't it. But as we all know, one size seldom fits all - for a person with deep interest in economic history or this theory it may well be one of the best buys ever.

"You say to God, 'My beliefs are flawless and I am pure in your sight.'" --Job 11:4

I know of no field of study filled with more methodological errors than the study of how markets work. Someone was bound to see the humor in all the people with big egos winning global honors for ideas that someone new to the subject could point out were obviously wrong. Indeed, many professors have been wearing no clothes for a long time and were proud of it.

I'm impressed that it is a former Fortune editor who appreciated the irony of the story and wrote about it in human terms. That magazine has had a history of jumping on the band wagon of bad economic ideas. Good for Justin Fox.

The ultimate irony of this subject is that in 2059, hundreds of thousands of young business school students will probably still be taught the inaccurate theories that were finally shown to be wrong in the last two decades. I would wager that few people today realize that most of the advocates of the efficient market theory have pulled in their horns in the face of strong evidence to the contrary. Hopefully, this book will help.

It must have been a tough book to write. The key points could have been summarized in a short article. The full story would take many volumes. For the most part, Mr. Fox seems to have kept his story at the right level to show how a small club of economists happily misled those who read their work for a long time based on assumptions that no one would have agreed resembled the real world. The Capital Asset Pricing Model, for instance, had its assumptions revised every few years by academics for a long time in a vain attempt to sustain it. Yet today, I would bet that most Chief Financial Officers of major companies still make decisions based on CAPM (or its near cousins) despite the theory clearly being wrong.

The "prize-winning" economics were writing about the world as they would like to have it: human beings as rational decision-makers where the highly intelligent quickly move out those who aren't. As we have seen, smart people can also outsmart themselves . . . such as by assuming that they have no effect on markets even when they take huge positions that cannot easily be liquidated (Long-Term Capital Management was an example).

The book's main weakness is that it doesn't pay enough attention to the role of company managements relative to financial markets. Also, the silliness of much of the advice for corporations that academics and consultants have peddled for the last 50 years isn't revealed.

My own view (based on many years of unpublished research during the years when no one thought that psychology played any role in markets and wouldn't publish such research) is that the markets are more efficient than is currently believed . . . when you know how to measure them. But the current measurements are hopelessly flawed and I know of no current academic research to correct those measurement errors. It may well be that someone will be able to write an updated version of this book about the silliness of today's ideas about markets in 50 years. I don't doubt that the opportunity to do so will exist

Economists tend to be love with theory. They tend not to like reality quite so much. As a rule, their odd views are confined to the academy. Once in a while, they spill out into the real world and do some real damage.

In this book, Justin Fox tells the history of one such academic attack on reality. He begins, very dramaticaly, with an account of Allan Greenspan's appearance before Congresss, in which he confessed that the Crash of '08 proved that his opinions had been deeply, deeply wrong. What were these views? Greenspan believed that the markets are always right. Thus, if real estate prices were through the roof, why then, by golly, that meant that real estate was just worth much more than it used to be worth. The market is always right. (Query. If the markets are always right, why then did the Fed under Greenspan need to prop them up, with huge infusions of liquidity, whenever they fell? Funny. In Greenspan's world, an up market is always right and should be left alone. A down market is horrifyingly wrong and calls for energetic government intervention. This is just a personal aside. Fox did not comment on this particular contradiction in Greenspan's worldview.)

To a practical person, this view sounds insane, as it was. Yes, the markets tend to be right, over a long period of time, but at any given moment the markets are almost always out of adjustment. For those tuned into reality, there is such a thing as the business cycle. In the business cycle, the market tends to push prices way above reality, in the boom, and then way below reality, in the bust. Any one who has actually done business for any length of time knows this is true, not as a matter of theory, but through his own experience. This is reality. You can argue about why it happens, but a sane person can not argue that it does not happen.

That did not stop a long line of famous and celebrated economists from arguing the contrary. Fox tells their story here. There is no business cycle, they said. Markets always get everything right, not over the long haul, but right now, faster than a speeding bullet. And, if you do not believe this, they have lots of nifty mathematical equations, which proved it.

While the story drags now and again, by and large, I thought it was fascinating. Fox brings back to life a whole parade of now mostly forgotten figures. God willing this history is now just that, history, because this particular piece of academic idiocy was so totally disproven by the Crash of '08 that no one will ever believe it again. But that gives leaves a market hole for the next piece of academic idiocy, which I am sure will be along shortly.

THE MYTH OF THE RATIONAL MARKET: A HISTORY OF RISK, REWARD, AND DELUSION ON WALL STREET comes form a Time editor and economic columnist who tells of the rise and fall of a powerful belief that financial markets are rational and capable of regulating themselves. This belief has led to dangerous actions and market hypothesis and this history introduces a new wave of analytical approach that points out the pitfalls of market strategies and investor psychology. Any collection strong in economics, from college-level holdings to general-interest libraries with solid business sections, needs this.

Fast moving history of the development of the 'efficient market hypothesis'. The research for the development of the book was thorough and comprehensive - the bibliography alone is worth the cost of the book.
The author didn't prove that the efficient market is a myth but certainly documented that there anomalies. No investment advise of any substance if that's what the reader is looking for.

Well written and very informative. It is not wonder that there are many surprises; market valuation is truly skin deep.

This is an excellently written and engaging stroll through the history of the rational market logic and players. Well worth the read. And don't worry; the "myth" stands!

This is a very well researched book. It is a review of all the key players in finance, economics and investing over the past century. The problem is that there is no central point contrary to the book's title. The organization is poor and at times I was frustrated following the book. There were numerous points when I would get very interested in something the author was writing but unfortunately all too often Mr. Fox would move onto a new topic or a new player. If you start skimming the book you will soon find out what I mean.

I have studied economics and have read a lot on similar topics. I was able to follow the author's points but without the appropriate background many readers may get bored or simply not appreciate the facts that the author presents in the book. It is not that the concepts are difficult; it is just that the significance of many parts may not be appreciated without appropriate context. On the positive side, readers will get an overview and summary of many important individuals such as Fisher, Keynes, Buffett, Samuelson and Shiller. I wish it had a more cohesive theme.

Waste of time, -led me over the hills and through the woods to abyss of thousands of words that could be condensed down to several pages. An average investor will be very disappointed while lovers of history
may have some interest.

The author reviews the development of the quasi-scientific 'efficient market hypothesis' into the dominant financial orthodoxy and then the counter-revolution against the orthodoxy, and increasing interest in "behavioral finance." This efficent market orthodoxy has heavily influenced everything from the way mutual funds, pension funds and individual investors have invested in the market to the increasing short-term focus of CEOs and the heavy use of options as compensation incentives. Recent years have probably seen the orthodoxy perversely create more volatility and instability in the marketplace (stability breeds instability) and in the mainstream economy due to the incentives to financial institutions to pursue riskier and riskier strategies under the dangerous assumptions of non-correlated security classes and normally distributed 'random walk' style returns.

Justin Fox builds this interesting and important story over a one hundred year period beginning in the first decade of the 20th century through the present, emphasizing the key players (including many Nobel prize winners) in economic and financial theory and their contributions to and viewpoints of the topic at hand. He covers many of the repeated failures of rational market pricing assumed by the orthodoxy, including the 1929 and 1987 (and 2007-09) market crashes, the collapse of the Nobel Laureate advised Long Term Capital hedge fund, the dot.com bubble and the recent real estate bubble and subprime and CDO/CDS crisis. Even one of these events statistically had an extremely low probability - according to the 'efficient market' models - of occurring within the one hundred year period. For all of them to have occurred is statistically impossible during the lifetime of our universe - according to the models. Ergo, the models are an insufficient description of reality.

The treatment is technical (but without equations) and is a good read for those who are interested in the theories which explain and shape economic and financial history. As an astrophysicist by training, I found some of the analogies to physics somewhat misplaced, but the author has a good grasp of the subject and conveys it well for a non-technical reader. He makes the personalities and the battle of ideas come alive as well.

I was amazed by how deep the author went tracing the history of mathematics and theories behind the stock market. The major theme in this book is whether the markets are efficient, meaning whether they correctly price financial instruments. I found it interesting to read that the "efficient market hypothesis" dominates thoughts of market participants, and as a result, the theory influences how market behave instead of explaining their behavior.

I do not agree when the authors which say that the market is driven by unexplainable psychological forces. They are explainable but not predictable, meaning that it is possible to explain irrational behavior but hard to predict it. A good book that talks about it is The Poker Face of Wall Street by Aaron Brown.

I enjoyed reading this book and I would recommend it to other investors.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market