Andrei Shleifer

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The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

James Tobin, “A Proposal for International Monetary Reform,” Eastern Economic Journal (July–Oct. 1978): 153–59; Keynes, General Theory, 160; “Glass’s 5% Tax Plan Stirs Wall Street,” New York Times, June 6, 1929, 6. CHAPTER 14: ANDREI SHLEIFER MOVES BEYOND RABBI ECONOMICS 1. Andrei Shleifer, “Do Demand Curves for Stocks Slope Down?” Journal of Finance (July 1986): 579–90. 2. This is Shleifer’s recollection. Scholes doesn’t recall the event but admits it sounds like something he would’ve said. 3. Oliver Blanchard, “In Honor of Andrei Shleifer: Winner of the John Bates Clark Medal,” Journal of Economic Perspectives (Winter 2001): 189–204. 4. Shleifer ran an advisory office in Moscow that was affiliated with Harvard and funded by the U.S.

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She was rebuffed by Greenspan and her fellow Clinton administration financial regulators, and late in 2000 Congress passed—and President Clinton signed—legislation barring regulation of over-the-counter derivatives. The market was working, the reasoning went. Why get in the way? THE FALL CHAPTER 14 ANDREI SHLEIFER MOVES BEYOND RABBI ECONOMICS The efficient market’s critics triumph by showing why irrational market forces can sometimes be just as pervasive as the rational ones. IN 1985, MIT GRADUATE STUDENT Andrei Shleifer assembled what he thought was compelling evidence against the efficient market hypothesis. He found that, starting in September 1976—the month after Vanguard launched the first retail index fund—new stocks being added to the S&P 500 went up relative to the rest of the market.

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Journal of Portfolio Management (Summer 1993): 51–62. 7. Josef Lakonishok, Andrei Shleifer, Richard Thaler, Robert Vishny, “Window Dressing by Pension Fund Managers,” American Economic Review (May 1991): 227–31. 8. “Pensions & Investments/Watson Wyatt World 500: The world’s largest managers,” Pensions & Investments, Oct. 13, 2008. Shleifer and Vishny had by this point both left the firm. 9. John Maynard Keynes, General Theory (New York: Harcourt, Brace, 1936), 157. 10. Amir Barnea, Robert A. Haugen, and Lemma W. Senbet, Agency Problems and Financial Contracting (Englewood Cliffs, N.J.: Prentice-Hall, 1985). 11. Andrei Shleifer and Robert W. Vishny, “The Limits of Arbitrage,” Journal of Finance (March 1997): 37. 12.

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

3Com Palm IPO, Alan Greenspan, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, behavioural economics, Berlin Wall, Bernie Madoff, Black-Scholes formula, book value, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, low interest rates, market clearing, Mason jar, mental accounting, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, PalmPilot, Paul Samuelson, payday loans, Ponzi scheme, Post-Keynesian economics, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, risk free rate, Robert Shiller, Robert Solow, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, sunk-cost fallacy, Supply of New York City Cabdrivers, systematic bias, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

.”* Three graduate students who had met when they shared a suite during their first year as undergraduates—Brad De Long, Andrei Shleifer, and Robert Waldmann—joined Summers to produce a more rigorous, thorough, and polite version of the “idiots” paper. The model they proposed used closed-end funds as an example of the type of asset that their model might help understand, but they had not done any empirical testing. Charles and I thought we might be able to build on some of the work Charles had done for his term paper to fill in that gap, and we asked Andrei Shleifer, who had recently joined the faculty at the University of Chicago, to join us on this project.

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“Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics 112, no. 2: 443–78. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance 49, no. 5: 1541–78. Lamont, Owen A., and Richard H. Thaler. 2003. “Can the Market Add and Subtract? Mispricing in Tech Stock Carve-Outs.” Journal of Political Economy 111, no. 2: 227–68. Landsberger, Michael. 1966. “Windfall Income and Consumption: Comment.” American Economic Review 56, no. 3: 534–40. Lee, Charles, Andrei Shleifer, and Richard H. Thaler. 1991. “Investor Sentiment and the Closed-End Fund Puzzle.”

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These columns were lightly edited and published in book form with the title The Winner’s Curse (the title of one of the columns). I then wrote a few more on an occasional basis, though without the quarterly deadline, their appearances becoming increasingly irregular. The last appeared in 2006. Shortly thereafter, the column was officially retired. The editor of the journal at that time, Andrei Shleifer, declared that their purpose had been served. That was a polite way of saying that my job chronicling anomalies had ended. I was fired. ________________ * One of the joys of writing the Anomalies columns was that the editors themselves handled the refereeing process, and every paper also received true “editing” to make it intelligible for non-specialists.

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Alan Greenspan, Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, John Bogle, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Performance of Mutual Funds in the Period, Pierre-Simon Laplace, power law, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Richard Florida, Richard Thaler, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, Stuart Kauffman, survivorship bias, systems thinking, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

So while understanding individual behavioral pitfalls may improve your own decision making, appreciation of the dynamics of the collective is key to outperforming the market. Behavioral-finance enthusiasts often fail to distinguish between the individual and the collective. Mug’s Game? Behavioral-finance experts understand the role of diversity in price formation. As Andrei Shleifer writes in his excellent book Inefficient Markets: An Introduction to Behavioral Finance:The efficient market hypothesis does not live or die by investor rationality. In many scenarios where some investors are not fully rational, markets are still predicted to be efficient. In one commonly discussed case, the irrational investors in the market trade randomly.

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Mauboussin and Kristen Bartholdson, “Long Strange Trip: Thoughts on Stock Market Returns,” Credit Suisse First Boston Equity Research, January 9, 2003. 8 Benartzi and Thaler, “Myopic Loss Aversion,” 80. 9 James K. Glassman and Kevin A. Hassett, Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market (New York: Times Books, 1999). 10 Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, “Contrarian Investment, Extrapolation, and Risk,” Journal of Finance 49, no. 5 (December 1994): 1541-78. 11 Bernstein, “Of Risk and Myopia.” 9. The Low Down on the Top Brass 1 Berkshire Hathaway Annual Letter to Shareholders, 1993, http://berkshire-hathaway. com/letters/1993.html. 2 Jim Collins, Good to Great (New York: HarperBusiness, 2001), 21. 3 Meghan Felicelli, “2006 YTD CEO Turnover,” SpencerStuart, December 31, 2006.

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Bartholdi III, “Centralized Versus Decentralized Control in Manufacturing: Lessons from Social Insects,” in Complexity and Complex Systems in Industry, ed. Ian P. McCarthy and Thierry Rakotobe-Joel (Warwick: University of Warwick, 2000), 92-105; http://www2.isye.gatechedu/˜carl/papers/cc.pdf. 4 For a discussion about the limits of arbitrage, see Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford: Oxford University Press, 2000). 5 Investors should also note that feedback operates at different levels. There can be feedback at the product level, the company level, and the market level. Sometimes these layers of feedback are correlated; at other times they’re not. 6 Sushil Bikhchandani and Sunil Sharma, “Herd Behavior in Financial Markets,” IMF Staff Paper 47, no. 3 (2001), http://www.imf.org/External/Pubs/FT/staffp/2001/01/pdf/bikhchan.pdf. 7 Sushil Bikhchandani, David Hirshleifer, and Ivo Welch, “Informational Cascades and Rational Herding: An Annotated Bibliography,” Working Paper: UCLA/Anderson and Michigan/GSB (June 1996). 8 Duncan J.

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof, Robert J. Shiller, Stanley B Resor Professor Of Economics Robert J Shiller

Andrei Shleifer, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, collapse of Lehman Brothers, compensation consultant, corporate raider, Credit Default Swap, Daniel Kahneman / Amos Tversky, dark matter, David Brooks, desegregation, en.wikipedia.org, endowment effect, equity premium, financial intermediation, financial thriller, fixed income, full employment, George Akerlof, greed is good, income per capita, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Arrow, Kenneth Rogoff, late fees, loss aversion, market bubble, Menlo Park, mental accounting, Michael Milken, Milgram experiment, money market fund, moral hazard, new economy, Pareto efficiency, Paul Samuelson, payday loans, Ponzi scheme, profit motive, publication bias, Ralph Nader, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, the new new thing, The Predators' Ball, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, too big to fail, transaction costs, Unsafe at Any Speed, Upton Sinclair, Vanguard fund, Vilfredo Pareto, wage slave

For business cycle dates, National Bureau of Economic Research, “U.S. Business Cycle Expansions and Contractions,” accessed January 13, 2015, http://www.nber.org/cycles.html. 3. Akerlof and Romer, “Looting.” 4. For use of the concept of “tunneling,” see Simon Johnson, Rafael La Porta, Florencio López de Silanes, and Andrei Shleifer, “Tunneling,” American Economic Review 90, no. 2 (May 2000): 22–27. 5. Council of Economic Advisors, Economic Report of the President 2013, table B-64, “Year-to-Year Inflation of the Consumer Price Index,” accessed December 1, 2014, http://www.whitehouse.gov/sites/default/files/docs/erp2013/full_2013_economic_report_of_the_president.pdf. 6.

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Can’t Stomach,” New York Times, April 3, 1989, asserted that Milken had the highest one-year pay in US history. 28. See, for example, Michael C. Jensen, “Takeovers: Their Causes and Consequences,” Journal of Economic Perspectives 2, no. 1 (Winter 1988): 21–48. 29. This opposite side of the coin has been argued in Andrei Shleifer and Lawrence H. Summers, “Breach of Trust in Hostile Takeovers,” in Corporate Takeovers: Causes and Consequences, ed. Alan J. Auerbach (Chicago: University of Chicago Press, 1988), pp. 33–68. 30. Brian Hindo and Moira Herbst, “Personal Best Timeline, 1986: ‘Greed Is Good,’” BusinessWeek, http://www.bloomberg.com/ss/06/08/personalbest_timeline/source/7.htm. 31.

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Bruck, The Predators’ Ball. 33. FDIC v. Milken, pp. 70–71. 34. Alison Leigh Cowan, “F.D.I.C. Backs Deal by Milken,” New York Times, March 10, 1992. 35. See Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Harvard University Press, 2014), p. 291, fig. 8.5, and p. 292, fig. 8.6. 36. Andrei Shleifer and Robert W. Vishny, “The Takeover Wave of the 1980s,” Science 249, no. 4970 (1990): 745–49. Chapter Eleven: The Resistance and Its Heroes 1. For 2013. World Bank, “Life Expectancy at Birth, Male (Years)” and “Life Expectancy at Birth, Female (Years),” accessed March 29, 2015, http://data.worldbank.org/indicator/SP.DYN.LE00.MA.IN/countries and http://data.worldbank.org/indicator/SP.DYN.LE00.FE.IN/countries. 2.

Irrational Exuberance: With a New Preface by the Author by Robert J. Shiller

Alan Greenspan, Andrei Shleifer, asset allocation, banking crisis, benefit corporation, Benoit Mandelbrot, book value, business cycle, buy and hold, computer age, correlation does not imply causation, Daniel Kahneman / Amos Tversky, demographic transition, diversification, diversified portfolio, equity premium, Everybody Ought to Be Rich, experimental subject, hindsight bias, income per capita, index fund, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, Long Term Capital Management, loss aversion, Mahbub ul Haq, mandelbrot fractal, market bubble, market design, market fundamentalism, Mexican peso crisis / tequila crisis, Milgram experiment, money market fund, moral hazard, new economy, open economy, pattern recognition, Phillips curve, Ponzi scheme, price anchoring, random walk, Richard Thaler, risk tolerance, Robert Shiller, Ronald Reagan, Small Order Execution System, spice trade, statistical model, stocks for the long run, Suez crisis 1956, survivorship bias, the market place, Tobin tax, transaction costs, tulip mania, uptick rule, urban decay, Y2K

If the description given was that the person was artistic and sensitive, they tended to choose conductor or sculptress, rather than laborer or secretary, disregarding entirely the fact that the former occupations are extremely rare and thus that the answers are much less likely to be right.18 It would be wiser, in answering such questions, almost never to guess the occupation conductor or sculptress, since the base rate probabilities are so low. But people look for the best-fit occupation, disregarding the base rate probabilities. Economists Nicholas Barberis, Andrei Shleifer, and Robert Vishny have developed the representativeness heuristic into a theory of investors’ selective overconfidence and into a psychological theory of an expectational feedback loop. These authors argue that investors, when they see stock prices move in the same direction for a while, gradually begin to assume that the trend is representative of many trends that they have seen in other economic data.

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A number of studies of international data have provided evidence that countries with more highly developed financial markets show higher economic growth or allocate resources more efficiently. See Robert G. King and Ross Levine, “Finance and Growth: Schumpeter May Be Right,” Quarterly Journal of Economics, 108 (1993): 717–37; Rafael LaPorta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “Corporate Ownership around the World,” Journal of Finance, 54 (1999): 471–518; and Jeffrey Wurgler, “Financial Markets and the Allocation of Capital,” unpublished paper, Yale University, 1999. 2. One study finds that individual investors tend to be less heavily invested in stocks during business cycle troughs, when expected returns tend to be high, while institutional investors tend to do the opposite, and hence to work in the direction of stabilizing the market.

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See Meir Statman and Steven Thorley, “Overconfidence, Disposition, and Trading Volume,” unpublished paper, Santa Clara University, 1999. 17. Brad M. Barber and Terrance Odean, “Online Investors: Do the Slow Die First?” unpublished paper, University of California at Davis, 1999. 244 NOT ES TO PAGES 60–65 18. A psychological theory rationale for such feedback is offered by Nicholas Barberis, Andrei Shleifer, and Robert Vishny, “A Model of Investor Sentiment,” Journal of Financial Economics, 49 (1998): 307–43. 19. See John Y. Campbell and John H. Cochrane, “By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior,” Journal of Political Economy, 107(2) (1999): 205–51. 20.

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson, James Kwak

Alan Greenspan, American ideology, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Bonfire of the Vanities, bonus culture, book value, break the buck, business cycle, business logic, buy and hold, capital controls, Carmen Reinhart, central bank independence, Charles Lindbergh, collapse of Lehman Brothers, collateralized debt obligation, commoditize, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency risk, Edward Glaeser, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, George Akerlof, Glass-Steagall Act, Gordon Gekko, greed is good, Greenspan put, Home mortgage interest deduction, Hyman Minsky, income per capita, information asymmetry, interest rate derivative, interest rate swap, junk bonds, Kenneth Rogoff, laissez-faire capitalism, late fees, light touch regulation, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, Martin Wolf, Michael Milken, money market fund, moral hazard, mortgage tax deduction, Myron Scholes, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, regulatory arbitrage, rent-seeking, Robert Bork, Robert Shiller, Ronald Reagan, Saturday Night Live, Satyajit Das, Savings and loan crisis, sovereign wealth fund, Tax Reform Act of 1986, The Myth of the Rational Market, too big to fail, transaction costs, Tyler Cowen, value at risk, yield curve

This belief reflects a general economic principle; given perfectly rational actors with perfect information and no externalities, all transactions should be beneficial for both parties. But few economists ever believed that these assumptions actually held in the real world. And over the next few decades, dozens of leading economists such as Joseph Stiglitz, Robert Shiller, and Larry Summers set about knocking holes in the Efficient Market Hypothesis.44 Brad DeLong, Andrei Shleifer, Summers, and Robert Waldmann created a model showing that “noise trading can lead to a large divergence between market prices and fundamental values.”45 Even Fischer Black (of Black-Scholes fame) agreed. At the 1985 meeting of the American Finance Association, he argued that it was impossible to differentiate between noise and information, and hence impossible to determine who was a noise trader and who was an information trader.

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Claudia Goldin and Lawrence Katz have examined data on Harvard undergraduates and found that while only 5 percent of men in classes around 1970 were in finance fifteen years after graduation, that figure tripled to 15 percent for classes around 1990.79 The share of each class entering banking and finance careers grew from under 4 percent in the 1960s to 23 percent in recent years.80 At Princeton’s School of Engineering and Applied Science, “Operations Research and Financial Engineering” became the most popular undergraduate major.81 The banks thus became major beneficiaries of the American educational system. Whether society benefited is another question. Kevin Murphy, Andrei Shleifer, and Robert Vishny have argued that society benefits more when talented people become entrepreneurs who start companies and create real innovations than when they go into rent-seeking activities that redistribute rather than increase wealth.82 If this is true, then this diversion of talent to Wall Street constituted a real tax on economic growth over the last two decades.

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Specific ways in which chaebol faced fewer financing constraints are explored in Hyun-Han Shin and Young S. Park, “Financing Constraints and Internal Capital Markets: Evidence from Korean Chaebols,” Journal of Corporate Finance 5 (1999): 169–91. 26. The extent to which families run businesses around the world is documented by Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “Corporate Ownership Around the World,” Journal of Finance 54 (1999): 471–517. For Asia, see Stijn Claessens, Simeon Djankov, and Larry H. P. Lang, “The Separation of Ownership and Control in East Asian Corporations,” Journal of Financial Economics 58 (2000): 81–112. For the prevalence of political connections between powerful businesspeople and government, see Mara Faccio, “Politically Connected Firms,” American Economic Review 96 (2006): 369–86.

Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier by Edward L. Glaeser

affirmative action, Andrei Shleifer, Berlin Wall, Boeing 747, British Empire, Broken windows theory, carbon footprint, carbon tax, Celebration, Florida, classic study, clean water, company town, congestion charging, congestion pricing, Cornelius Vanderbilt, declining real wages, desegregation, different worldview, diversified portfolio, Edward Glaeser, Elisha Otis, endowment effect, European colonialism, Fairchild Semiconductor, financial innovation, Ford Model T, Frank Gehry, global village, Guggenheim Bilbao, haute cuisine, high-speed rail, Home mortgage interest deduction, James Watt: steam engine, Jane Jacobs, job-hopping, John Snow's cholera map, junk bonds, Lewis Mumford, machine readable, Mahatma Gandhi, McMansion, megacity, megaproject, Michael Milken, mortgage debt, mortgage tax deduction, New Urbanism, place-making, Ponzi scheme, Potemkin village, Ralph Waldo Emerson, rent control, RFID, Richard Florida, Rosa Parks, school vouchers, Seaside, Florida, Silicon Valley, Skype, smart cities, Steven Pinker, streetcar suburb, strikebreaker, Thales and the olive presses, the built environment, The Death and Life of Great American Cities, the new new thing, The Wealth of Nations by Adam Smith, trade route, transatlantic slave trade, upwardly mobile, urban planning, urban renewal, urban sprawl, vertical integration, William Shockley: the traitorous eight, Works Progress Administration, young professional

I have been blessed by wonderful colleagues at Harvard who have taught me much about cities, including Alan Altshuler, John Campbell, David Cutler, Benjamin Friedman, Roland Fryer, Claudia Goldin, Tony Gomez-Ibanez, Lawrence Katz, and Andrei Shleifer. I am particularly indebted to John Kain and John Meyer, two great figures in the economics of cities who are sadly gone. Many of the ideas in this book were first expressed in academic articles that were coauthored with David Cutler, Denise DiPasquale, Glenn Ellison, Jess Gaspar, Joseph Gyourko, Matthew Kahn, Hedi Kallal, William Kerr, Janet Kohlhase, Jose Scheinkman, and Andrei Shleifer. Many of those articles have also been written with students and former students, including Alberto Ades, Guy Dumais, Joshua Gottlieb, Jed Kolko, David Mare, Matthew Resseger, Bruce Sacerdote, Albert Saiz, Jesse Shapiro, and Jacob Vigdor.

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Many others were also enormously patient as I tried to get a feel of the world’s cities by walking their streets, and I apologize to those whom I have failed to thank by name. I am particularly grateful to those people who read the book and provided helpful comments: Joshua Gottlieb, Jesse Shapiro, Andrei Shleifer, Lawrence Summers, and Mitchell Weiss. Neil Levine helped me on the architectural history in the book. Stephen Greenblatt read the section on Shakespeare; his wisdom has been most helpful. The broader intellectual debts of this book are enormous. I have been profoundly influenced by my teachers, my colleagues, my coauthors, my students, and the many great urbanists whose work I have long admired.

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Chicago: University of Chicago Press, 2006. Davey, Monica. “Detroit Mayor’s Tough Love Poses Risks in Election.” New York Times, Sept. 25, 2009. Davis, Heather Greenwood. “Dubai Hits the Heights Again: World’s Tallest Tower Goes over the Top with Luxury Complex.” Toronto Star, Jan. 7, 2010, Travel. de Long, J. Bradford, and Andrei Shleifer. “Princes and Merchants: European City Growth Before the Industrial Revolution.” Journal of Law and Economics 36 (Oct. 1993). DeNavas-Walt, Carmen, Bernadette D. Proctor, and Jessica C. Smith. U.S. Bureau of the Census, Current Population Reports, Income, Poverty, and Health Insurance Coverage in the United States: 2008, September 2009, Table 4: “People and Families in Poverty by Selected Characteristics: 2007 and 2008,” p. 14.

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return by Mihir Desai

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, AOL-Time Warner, assortative mating, Benoit Mandelbrot, book value, Brownian motion, capital asset pricing model, Carl Icahn, carried interest, Charles Lindbergh, collective bargaining, corporate governance, corporate raider, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, follow your passion, George Akerlof, Gordon Gekko, greed is good, housing crisis, income inequality, information asymmetry, Isaac Newton, Jony Ive, Kenneth Rogoff, longitudinal study, Louis Bachelier, low interest rates, Monty Hall problem, moral hazard, Myron Scholes, new economy, out of africa, Paul Samuelson, Pierre-Simon Laplace, principal–agent problem, Ralph Waldo Emerson, random walk, risk/return, Robert Shiller, Ronald Coase, short squeeze, Silicon Valley, Steve Jobs, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, tontine, transaction costs, vertical integration, zero-sum game

My colleagues in the Finance Unit at HBS have influenced my thinking in many ways, from seminars to teaching groups, and I am grateful to all of them. I was fortunate to be introduced to finance by a remarkable set of teachers, including Michael Edelson, Scott Mason, Dwight Crane, Andre Perold, Peter Tufano, John Campbell, Oliver Hart, and Andrei Shleifer. My academic mentors—Marty Feldstein, Michael Graetz, James R. Hines Jr., and Andrei Shleifer—have provided me with lasting models of scholarly integrity and ambition. I’ve been afforded incredible opportunities to interact with many thoughtful undergraduate, MBA, JD, doctoral, and executive education students. This book is a direct result of what they have taught me about these ideas and about teaching.

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This might seem like a trivial matter because, obviously, they own their share in a company or a production and are therefore due their share of the profits. But The Producers captures an essential truth of finance—investors have few rights and usually have little knowledge of what actually is going on. So then the puzzle becomes, as economists Andrei Shleifer and Robert Vishny put it, why “suppliers of capital get anything back. After all, they part with their money and have little to contribute to the enterprise afterward. The professional managers and entrepreneurs who run the firms might as well abscond with the money.” In other words, why doesn’t capitalism collapse into an endless series of frauds?

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Other sources cited in chapter 1 on moral hazard are excellent sources for corporate governance issues as well. An excellent textbook treatment of these issues is provided in Tirole, Jean. The Theory of Corporate Finance. Princeton, NJ: Princeton University Press, 2006. For an international perspective, see La Porta, Rafael, Florencio Lopez-De-Silanes, and Andrei Shleifer. “Corporate Ownership Around the World.” Journal of Finance 54, no. 2 (April 1999): 471–517. An exposition of venture capital securities is provided by Gompers, Paul A., and Joshua Lerner. The Venture Capital Cycle. Cambridge, MA: MIT Press, 1999. On the developments at Tootsie Roll, I draw on several journalistic accounts: Kesling, Ben.

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again by Atif Mian, Amir Sufi

Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, behavioural economics, Ben Bernanke: helicopter money, break the buck, business cycle, Carmen Reinhart, collapse of Lehman Brothers, creative destruction, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, quantitative easing, Robert Shiller, Robert Solow, school choice, seminal paper, shareholder value, subprime mortgage crisis, the payments system, the scientific method, tulip mania, young professional, zero-sum game

Figure 2.3 shows house prices over time in both types of states—the sharp relative decline in house prices in states not requiring a judicial foreclosure is clear.7 Using this difference across states, our research concludes that house prices declined by 1.9 percentage points for every 1 percent of home owners going into foreclosure between 2007 and 2009. Further, by pulling down house prices, foreclosures dampened consumption and home building. Debt-induced fire sales are not limited to the housing market. Andrei Shleifer and Robert Vishny emphasize the importance of fire sales following the leveraged-buyout wave of the late 1980s.8 In that episode, companies with extremely high leverage were forced to sell assets at steeply discounted prices, which then lowered the value of collateral for all businesses. John Geanakoplos has written extensively on the impact of fire sales.9 His work demonstrates how default means that an asset is transferred from someone for whom it’s worth a lot (the borrower) to someone for whom it’s worth much less (the lender).

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They are sure that the underlying collateral protects them even when house prices inevitably decline. Debt leads to bubbles in part because it gives lenders a sense of security that they will be unaffected if the bubble bursts. But what if lenders are wrong? What if they are actually exposed to this risk? The answer is closely related to a phenomenon that Nicola Gennaioli, Andrei Shleifer, and Robert Vishny call “neglected risks.”11 They argue that certain unlikely events can materialize that are completely unexpected, because investors neglect the risks that they could happen. In the context of the housing crash, many investors may have neglected the risk of house prices falling more than 10 percent.

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Another study using a different methodology found very similar results: Elliot Anenberg and Edward Kung, “Estimates of the Size and Source of Price Declines Due to Nearby Foreclosures” (working paper 2013-09, UCLA, January 11, 2013). They find the same channel: foreclosures push down nearby house prices by forcing them to sell below the price previously posted in the market. 8. Andrei Shleifer and Robert Vishny, “Liquidation Values and Debt Capacity: A Market Equilibrium Approach,” Journal of Finance 47 (1992): 1343–66. 9. John Geanakoplos, “The Leverage Cycle,” in NBER Macroeconomic Annual 2009, vol. 24, ed. Daron Acemoglu, Kenneth Rogoff, and Michael Woodford (Chicago: University of Chicago Press, 2010), 1–65. 10.

Why Nudge?: The Politics of Libertarian Paternalism by Cass R. Sunstein

Affordable Care Act / Obamacare, Andrei Shleifer, availability heuristic, behavioural economics, Cass Sunstein, choice architecture, clean water, cognitive load, Daniel Kahneman / Amos Tversky, Edward Glaeser, endowment effect, energy security, framing effect, invisible hand, late fees, libertarian paternalism, loss aversion, nudge unit, randomized controlled trial, Richard Thaler

WATCH 210, 212 (2013), available at http://econjwatch.org/articles/why-is-there-no-milton-friedman-today-RP. 11. See David Laibson, Golden Eggs and Hyperbolic Discounting, 112 Q.J. ECON. 443, 445 (1997). 12. For a discussion of some of the foundational issues, see Pedro Bordalo, Nicola Gennaioli & Andrei Shleifer, Salience Theory of Choice Under Risk, 127 Q.J. ECON. 1243 (2012); Pedro Bordalo, Nicola Gennaioli & Andrei Shleifer, Salience in Experimental Tests of the Endowment Effect, 102 AM. ECON. REV. 47 (2012). 13. See Ted O’Donoghue & Matthew Rabin, Choice and Procrastination, 116 Q.J. ECON. 121, 121–22 (2001); Richard H. Thaler & Shlomo Benartzi, Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving, 112 J.

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., http://99u.com/articles/6969/10-Online-Tools-for-Better-Attention-Focus; http://appsforhealthykids.com/; http://exercise.about.com/od/videosmusicsoftware/tp/fitnessapps.htm. 19. For valuable discussion, see IAN AYRES, CARROTS AND STICKS (2010). 20. See OREN BAR-GILL, SEDUCTION BY CONTRACT (2012). On the general point, see Andrei Shleifer, Psychologists at the Gate, 50 J. ECON. LITERATURE 1080 (2012). 21. See HEURISTICS: THE FOUNDATIONS OF ADAPTIVE BEHAVIOR (Gerd Gigerenzer et al. eds., 2011). 22. Michael Greenstone, Toward a Culture of Persistent Regulatory Experimentation and Evaluation, in NEW PERSPECTIVES ON REGULATION 111 (David Moss & John Cisternino eds., 2009).

Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing by Vijay Singal

3Com Palm IPO, Andrei Shleifer, AOL-Time Warner, asset allocation, book value, buy and hold, capital asset pricing model, correlation coefficient, cross-subsidies, currency risk, Daniel Kahneman / Amos Tversky, diversified portfolio, endowment effect, fixed income, index arbitrage, index fund, information asymmetry, information security, junk bonds, liberal capitalism, locking in a profit, Long Term Capital Management, loss aversion, low interest rates, margin call, market friction, market microstructure, mental accounting, merger arbitrage, Myron Scholes, new economy, prediction markets, price stability, profit motive, random walk, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, short squeeze, survivorship bias, Tax Reform Act of 1986, transaction costs, uptick rule, Vanguard fund

For example, Dimensional Fund Advisors, which manages more than $30 billion in assets, is associated with Eugene Fama of the University of Chicago, Ken French of Dartmouth College, and two of their former students, David Booth and Rex Sinquefield. LSV Asset Management, which manages about $8 billion, is owned by Josef Lakonishok of the University of Illinois, Andrei Shleifer of Harvard, and Robert Vishny of the University of Chicago. Long Term Capital Management, whose failure shook world financial markets in 1998 and which had to be rescued by a group of large banks prodded on by the Federal Reserve, was advised by Nobel laureates Robert Merton and Myron Scholes. 2 The January Effect and the New December Effect Small loser stocks are known to appreciate considerably in January, giving rise to the so-called January effect.

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., and Josef Lakonishok. 1988. The Incredible January Effect: The Stock Market’s Unsolved Mystery (Homewood, Ill.: Dow Jones–Irwin). Keim, Donald B. 1983. Size-Related Anomalies and Stock Return Seasonality: Further Empirical Evidence. Journal of Financial Economics 12, 13–32. Lakonishok, Josef, Andrei Shleifer, Richard Thaler, and Robert Vishny. 1991. Window Dressing by Pension Fund Managers. American Economic Review 81, 227–31. Poterba, James M., and Scott J. Weisbenner. 2001. Capital Gains Tax Rules, Tax-Loss Trading, and the Turn-of-the-Year Returns. Journal of Finance 56(1), 353–68. Reinganum, Mark. 1983.

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Journal of Portfolio Management 11(4), 4–13. Arbel, Avner, and Paul Strebel. 1982. The Neglected and Small Firm Effects. Financial Review 17(4), 201–18. Barber, Brad M., and Terrance Odean. 2001. Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment. Quarterly Journal of Economics 116(1), 261–92. Barberis, Nicholas, Andrei Shleifer, and Robert Vishny. 1998. A Model of Investor Sentiment. Journal of Financial Economics 49(3), 307–43. Barsky, Robert B., and J. Bradford De Long. 1993. Why Does the Stock Market Fluctuate. Quarterly Journal of Economics 108(2), 291–311. Brav, Alon, and J. B. Heaton. 2002. Competing Theories of Financial Anomalies.

The Little Book of Hedge Funds by Anthony Scaramucci

Alan Greenspan, Andrei Shleifer, asset allocation, Bear Stearns, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, financial engineering, fixed income, follow your passion, global macro, Gordon Gekko, high net worth, index fund, it's over 9,000, John Bogle, John Meriwether, Long Term Capital Management, mail merge, managed futures, margin call, mass immigration, merger arbitrage, Michael Milken, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, proprietary trading, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, short squeeze, Silicon Valley, tail risk, Thales and the olive presses, Thales of Miletus, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule, Vanguard fund, Y2K, Yogi Berra, zero-sum game

We also believe that hedge fund investors will continue to commit capital to mortgage strategies to seek out uncorrelated return streams, improve portfolio diversification, and achieve high risk-adjusted returns. Chapter Six Ironing Out Inefficiencies Exploiting the Efficient Market Theory If the efficient markets hypothesis was a publicly traded security, its price would be enormously volatile. —Andrei Shleifer and Lawrence H. Summers, The Noise Trader Approach to Finance In 1990, Andrei Shleifer and Larry Summers mockingly made the comment that begins this chapter, adding that the “stock in the efficient markets hypothesis—at least as it has been traditionally formulated—crashed along with the rest of the market on October 19, 1987 . . . and its recovery has been less dramatic than that of the rest of the market.”1 Pretty fun for a pair of economists from Harvard, especially for one who would serve as President Clinton’s Secretary of the Treasury and President Obama’s Director of the White House National Economic Council.

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Therefore I see two paths for hedge funds: Path 1 will be to remain nimble, opportunistic and compact, maximizing returns in periods of dislocation, and preserving capital during stress. Path 2 will be to grow larger by diversification into long only and hybrid products. The long only industry has pockets of excellence, but hedge funds competing in this space have good prospects to outperform. Notes 1. Andrei Shleifer and Lawrence Summers, “The Noise Trader Approach to Finance,” Journal of Economic Perspectives 4, no. 2 (Spring 1990), www.economics.harvard.edu/faculty/shleifer/files/noise_trader_approach_finance.pdf. Chapter Seven A Balancing Act Outperforming the Market while Taking Less Risk The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

3D printing, Affordable Care Act / Obamacare, Airbnb, Alvin Roth, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, Benchmark Capital, big data - Walmart - Pop Tarts, bitcoin, blockchain, business cycle, business logic, business process, buy low sell high, chief data officer, Chuck Templeton: OpenTable:, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, data science, digital map, discounted cash flows, disintermediation, driverless car, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Free Software Foundation, gigafactory, growth hacking, Haber-Bosch Process, High speed trading, independent contractor, information asymmetry, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, Kevin Roose, Khan Academy, Kickstarter, Lean Startup, Lyft, Marc Andreessen, market design, Max Levchin, Metcalfe’s law, multi-sided market, Network effects, new economy, PalmPilot, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Salesforce, Satoshi Nakamoto, search costs, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, social bookmarking, social contagion, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the long tail, the payments system, Tim Cook: Apple, transaction costs, Travis Kalanick, two-sided market, Uber and Lyft, Uber for X, uber lyft, vertical integration, winner-take-all economy, zero-sum game, Zipcar

But the existence of the phenomenon of regulatory capture is not necessarily a fatal blow to the argument in favor of regulation—or even the argument in favor of regulating platforms in particular. It’s possible to argue that, rather than eliminating regulation altogether, we need to design political, social, and economic systems that reduce the likelihood of regulatory capture—for example, through laws that restrict the “revolving door” between business and government. Economist Andrei Shleifer, a scholar in the areas of corporate governance and government regulation, points out that there are strong differences in the prevalence of regulatory capture across countries. When governments are relatively unchecked by their citizens, strong regulation often leads to high levels of corruption and expropriation by government officials.

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Economist Simeon Djankov and colleagues have classified the range of possible regulatory regimes on a spectrum from private orderings (what we call private governance), through systems that rely on court rulings administered by independent judges or regulation by state employees, to direct government ownership of assets (socialism).17 Their visual depiction of this spectrum (Figure 11.1) reflects the tradeoff between social losses because of private misdeeds and social losses because of government misbehavior. Over the last two generations, as Andrei Shleifer has noted, most economists and political theorists have shifted from viewing government intervention in a positive light to preferring privatization.18 Today, there’s a trend toward regulation that was once provided by governments now being provided by private entities acting in their own self-interest—for example, the gradual shift from nationally mandated accounting standards like the Generally Accepted Accounting Principles used in the United States toward the International Financial Reporting Standards promulgated by the International Accounting Standards Board, a private organization based in London.

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In fact, the winning bid was $503,300, but it is unclear whether anyone actually paid this amount. 16. Hillel Aron, “How eBay, Amazon and Alibaba Fuel the World’s Top Illegal Industry—The Counterfeit Products Market,” LA Weekly, December 3, 2014, http://www.laweekly.com/news/how-ebay-amazon-and-alibaba-fuel-the-worlds-top-illegal-industry-the-counterfeit-products-market-5261019. 17. Andrei Shleifer and Robert W. Vishny, “A Survey of Corporate Governance,” Journal of Finance 52, no. 2 (1997): 737–83, esp. 737. 18. Steve Denning, “The Dumbest Idea in the World: Maximizing Shareholder Value,” Forbes, November 28, 2011, http://www .forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/. 19.

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Abraham Maslow, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, bread and circuses, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, disinformation, diversification, double helix, Edward Glaeser, financial deregulation, financial engineering, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, general purpose technology, George Akerlof, Gini coefficient, Glass-Steagall Act, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, language acquisition, Large Hadron Collider, liberal capitalism, light touch regulation, Long Term Capital Management, long term incentive plan, Louis Pasteur, low cost airline, low interest rates, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, meritocracy, Mikhail Gorbachev, millennium bug, Money creation, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, power law, price discrimination, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, systems thinking, tail risk, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, three-masted sailing ship, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, work culture , working poor, world market for maybe five computers, zero-sum game, éminence grise

There is a distinction to be made between genuine entrepreneurship, invention and innovative leadership that create wealth, and being clever at capturing wealth that others have made and redistributing it to oneself – what economists call ‘rent’ or a return for inert property possession. Three leading theorists from Harvard and MIT – Kevin Murphy, Robert Vishny and Andrei Shleifer – argue in an important paper that countries in which talent pursues such rent-seeking activity rather than genuine entrepreneurship grow at a slower rate: ‘Pure entrepreneurial activities raise current income because resources are used more efficiently, contribute to growth because technology is improved, and take profits away from competitors.’19 Rent-seeking does the opposite.

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One of the reasons that so many mergers and takeovers fail afterwards is that predator companies, when they assess the profitability of a hostile takeover, regard eliminating the network of promises, processes and implicit contracts on which most firms depend as a source of a quick win. They are wrong: these elements comprise the glue that holds the company together. Larry Summers and Andrei Shleifer have argued that this type of financial engineering is a form of economic vandalism – wrecking a firm’s social capital for unsustainable short-term cost advantage.28 However, you will look in vain in mainstream economics text-books for such understanding of flesh-and-blood markets peopled by flesh-and-blood economic actors.

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See also Serge-Christophe Kolm and Jean Mercier Ythier (eds) (2006) The Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier, North-Holland. 16 Paul Burrows and Graham Loomes (1994) ‘The Impact of Fairness on Bargaining Behavior’, Empirical Economics 19: 201–21. 17 Elizabeth Hoffman and Matthew Spitzer (1985) ‘Entitlements, Rights, and Fairness: An Experimental Examination of Subjects’ Concepts of Distributive Justice’, Journal of Legal Studies 14: 259–97. 18 Bruno S. Frey and Werner W. Pommerehne (1993) ‘On the Fairness of Pricing – an Empirical Survey among the General Population’, Journal of Economic Behavior and Organisation 20: 295–307. 19 Kevin Murphy, Andrei Shleifer and Robert Vishny (1991) ‘The Allocation of Talent: Implications for Growth’, The Quarterly Journal of Economics 106 (2): 503–30. 20 See Israel M. Kirzner, ‘The Nature of Profits: Some Economic Insights and Their Ethical Implications’, in Robin Cowan and Mario J. Rizzo (eds) (1994) Profits and Morality, University of Chicago Press. 21 The New Economics Foundation (2010) ‘A Bit Rich’, paper. 22 Unpublished documents by the Fabian Society. 23 Michael Hanman and John Freeman (1989) Organisational Ecology, Harvard University Press. 24 Ove Arup, ‘The Key Speech’, at http://www.arup.com/Publications/The_Key_Speech.aspx. 25 John Spedam Lewis’s 1957 broadcast on the BBC, John Lewis website.

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , book value, borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, Carl Icahn, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, Glass-Steagall Act, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, junk bonds, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, long and variable lags, Louis Bachelier, low interest rates, market bubble, Mexican peso crisis / tequila crisis, Michael Milken, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, planned obsolescence, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, proprietary trading, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, stock buybacks, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Other analysts have argued that while ^ is a weak explanation of real investment, changes in stock prices do a better job (Barro 1990). But it may be that the stock market is simply a leading indicator of the business cycle, responding quickly to changes in interest rates and central bank policy, rather than being the independent cause of anything. Randall Morck, Andrei Shleifer, and Robert Vishny (1990) found that over the period 1960-1987, the stock market explained very little of the change in real investment once fundamentals like sales and profit growth were controlled for — relations that held for the stock market and economy taken as a whole, and for individual firms examined in detail.^° Introducing external financing — new stock and debt issues — added a bit of explanatory power to their equations, but not much, with new debt doing a better job than equity.

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In one study of 62 hostile takeover bids between 1984 and 1986, for example, an important target was lumber firms who were not cutting enough timber "given the interest rate, the growth rate of trees, and the price path for timber." The infamous Maxxam takeover of Pacific Lumber was inspired by fallow old redwoods that the latter wouldn't cut. Maxxam, powered by junk, took over Pacific Lumber and liquidated the trees. Thinking like economists, Sanjai Bhagat, Andrei Shleifer, and Robert Vishny (1990, p. 54), declared that "we have a case in which cutting the trees raises efficiency." And if trees are not sacrificed at the rate dictated by interest rates, then Wall Street is being cheated of free cash flow. Rising to a higher theoretical pitch in his early 1990s work, Jensen likened the "new LBO associations" — those with a KKR-like boutique at the center — to Japanese keiretsu, which are groups of associated firms with a large bank at their center (Jensen 1991).

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Capital Ideas: The Improbable Origins of Modern Wall Street (New York: Free Press). Berthoud, Richard, and Elaine Kempson (1992). Credit and Debt: The PSI Report {London: Policy Studies Institute). Betker, Brian L. (1995). "Administrative Costs of Debt Restructurings," Ohio State University mimeo (May). Bhagat, Sanjai, Andrei Shleifer, and Robert W. Vishny (1990). "Hostile Takeovers in the 1980s: The Return to Corporate Specialization," Brookings Papers on Economic Activity: Microeconomics, pp. 1-85. Bilello, Suzanne (1992). "Free-Trade Pact Stirs Emotions," New York Newsday, August 7. Black, Fisher (1986). "Noise," Journal of Finance i\ (July), pp. 529-543.

10% Less Democracy: Why You Should Trust Elites a Little More and the Masses a Little Less by Garett Jones

Andrei Shleifer, Asian financial crisis, Brexit referendum, business cycle, central bank independence, clean water, corporate governance, correlation does not imply causation, creative destruction, Edward Glaeser, fake news, financial independence, game design, German hyperinflation, hive mind, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jean Tirole, Kenneth Rogoff, low interest rates, Mark Zuckerberg, mass incarceration, military-industrial complex, minimum wage unemployment, Mohammed Bouazizi, Neil Armstrong, open economy, Pareto efficiency, Paul Samuelson, price stability, rent control, Robert Solow, The Wealth of Nations by Adam Smith, trade liberalization, Tyler Cowen

Ash and McLeod again: “We [compare] the performance of judges on the same court, making decisions in the same year, but selected under different systems.”¹⁰ Their overall conclusion, after running a variety of statistical checks: “We . . . find that compared to judges selected by voters, there is consistent evidence that judges selected by a merit commission are better at their jobs.”¹¹ Since merit commissions are the most common method of judicial appointment across the rich countries, it’s fair to say that in practice, appointed judges are better than democratically selected judges. An Economist’s Take on Less Democratic Judges Around the World Around the year 2000, a team of economists—Dartmouth’s Rafael La Porta, Yale’s Florencio Lopez-de-Silanes, Columbia’s Cristian Pop-Eleches, and Harvard’s Andrei Shleifer—took a serious look at the value of “judicial independence” as they called it.¹² Treating the nations of the world as separate laboratories, they checked to see if countries with judicial systems that were more independent from the political system had more of what they called “economic freedom,” which they defined as “security of property rights, the lightness of government regulation, and the modesty of state ownership.”

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Jimmy Carter, Why Not the Best? The First 50 Years (Fayetteville: University of Arkansas Press, 1975). 10. Ash and McLeod, “Performance of Elected Officials,” 3. 11. Ash and McLeod, “Performance of Elected Officials,” 3. 12. Rafael La Porta, Florencio Lopez-de-Silanes, Cristian Pop-Eleches, and Andrei Shleifer, “Judicial Checks and Balances,” Journal of Political Economy 112, no. 2 (2004): 445–470. 13. La Porta et al., “Judicial Checks,” 457. 14. Michael Baldassare, “The Orange County Bankruptcy: Who’s Next?” Public Policy Institute of California research brief (April 1998). 15. Whalley, “Elected versus Appointed,” n. 7. 16.

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“Central Bank Independence and Financial Instability.” Journal of Financial Stability 5, no. 4 (2009): 321–338. Kydland, Finn E., and Edward C. Prescott. “Time to Build and Aggregate Fluctuations.” Econometrica (1982): 1345–1370. La Porta, Rafael, Florencio Lopez-de-Silanes, Cristian Pop-Eleches, and Andrei Shleifer. “Judicial Checks and Balances.” Journal of Political Economy 112, no. 2 (2004): 445–470. Lee Kuan Yew. The Wit and Wisdom of Lee Kuan Yew. Singapore: Editions Didier Millet, 2013. Liow, Lee Hsiang, Mikael Fortelius, Ella Bingham, Kari Lintulaakso, Heikki Mannila, Larry Flynn, and Nils Chr.

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Barberis, Nicholas; and Ming Huang (2008), “Stocks as lotteries: The implications of probability weighting for security prices,” American Economic Review 98 (December), 2066–2100. Barberis, Nicholas; Ming Huang; and Tano Santos (2001), “Prospect theory and asset prices,” Quarterly Journal of Economics 116, 1–53. Barberis, Nicholas; and Andrei Shleifer (2003), “Style investing,” Journal of Financial Economics 68, 161–199. Barberis, Nicholas; Andrei Shleifer; and Robert Vishny (1998), “A model of investor sentiment,” Journal of Financial Economics 49, 307–345. Barberis, Nicholas; Andrei Shleifer; and Jeffrey Wurgler (2005), “Comovement,” Journal of Financial Economics 75, 283–317. Barberis, Nicholas; and Richard H. Thaler (2003), “A survey of behavioral finance,” in Handbook of the Economics of Finance (G.

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Journal of Finance 64(4), 1889–1933. Lakonishok, Josef; Andrei Shleifer; and Robert W. Vishny (1994), “Contrarian investment, extrapolation, and risk,” Journal of Finance 49(5), 1541–1578. Lamont, Owen A.; and Richard H. Thaler (2003), “Can the market add and subtract? Mispricing in tech stock carve-outs,” Journal of Political Economy 111, 227–268. Lancetti, Sebastian; and David Nordquist (2008), “29 years of style investing in the US: The importance of sectors,” Global Quantitative Research Monograph, UBS Investment Research, July 9, 2008. La Porta, Rafael; Josef Lakonishok; Andrei Shleifer; and Robert Vishny (1997), “Good news for value stocks: Further evidence on market efficiency,” Journal of Finance 49, 1541–1578.

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Bondarenko, Oleg (2007), “Variance trading and market price of variance,” University of Illinois working paper. Booth, David G.; and Eugene F. Fama (1992), “Diversification returns and asset contributions,” Financial Analysts Journal (May/June), 26–32. Bordalo, Pedro; Nicola Gennaioli; and Andrei Shleifer (2010), “Salience theory of choice under risk,” Harvard University working paper. Boston Consulting Group (2010), In Search of Stable Growth: Global Asset Management 2010, annual report, available at http://www.bcg.com/documents/file53448.pdf Boudoukh, Jacob; Roni Michaely; Matthew Richardson; and Michael R.

The Journey of Humanity: The Origins of Wealth and Inequality by Oded Galor

agricultural Revolution, Alfred Russel Wallace, Andrei Shleifer, Apollo 11, Berlin Wall, bioinformatics, colonial rule, Columbian Exchange, conceptual framework, COVID-19, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, deindustrialization, demographic dividend, demographic transition, Donald Trump, double entry bookkeeping, Easter island, European colonialism, Fall of the Berlin Wall, Francisco Pizarro, general purpose technology, germ theory of disease, income per capita, intermodal, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, James Hargreaves, James Watt: steam engine, Joseph-Marie Jacquard, Kenneth Arrow, longitudinal study, loss aversion, Louis Pasteur, means of production, out of africa, phenotype, rent-seeking, rising living standards, Robert Solow, Scramble for Africa, The Death and Life of Great American Cities, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Walter Mischel, Washington Consensus, wikimedia commons, women in the workforce, working-age population, World Values Survey

Giavazzi, Francesco, Ivan Petkov and Fabio Schiantarelli, ‘Culture: Persistence and Evolution’, Journal of Economic Growth 24, no. 2 (2019): 117–54. Gibbons, Ann, ‘How farming shaped Europeans’ immunity’, Science 373, no. 6560 (2021): 1186. Glaeser, Edward L., Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, ‘Do Institutions Cause Growth?’, Journal of Economic Growth 9, no. 3 (2004): 271–303. Glaeser, Edward L., and Andrei Shleifer, ‘Legal origins’, The Quarterly Journal of Economics 117, no. 4 (2002): 1193–229. Goldin, Claudia, ‘America’s graduation from high school: The evolution and spread of secondary schooling in the twentieth century’, The Journal of Economic History 58, no. 2 (1998): 345–74.

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., The Copernican Revolution: Planetary Astronomy in the Development of Western Thought, Vol. 16, Harvard University Press, 1957. Kuznets, Simon, ‘Quantitative Aspects of the Economic Growth of Nations: X. Level and Structure of Foreign Trade: Long-Term Trends’, Economic Development and Cultural Change 15, no. 2, Part 2 (1967): 1–140. La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny, ‘Legal Determinants of External Finance’, The Journal of Finance 52, no. 3 (1997): 1131–50. Lagerlöf, Nils-Petter, ‘Gender Equality and Long-run Growth’, Journal of Economic Growth 8, no. 4 (2003): 403–26. Lagerlöf, Nils-Petter, ‘The Galor–Weil model revisited: A quantitative exercise’, Review of Economic Dynamics 9, no. 1 (2006): 116–42.

Restarting the Future: How to Fix the Intangible Economy by Jonathan Haskel, Stian Westlake

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Andrei Shleifer, Big Tech, Black Lives Matter, book value, Boris Johnson, Brexit referendum, business cycle, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, Charles Lindbergh, charter city, cloud computing, cognitive bias, cognitive load, congestion charging, coronavirus, corporate governance, COVID-19, creative destruction, cryptocurrency, David Graeber, decarbonisation, Diane Coyle, Dominic Cummings, Donald Shoup, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, Edward Glaeser, equity risk premium, Erik Brynjolfsson, Estimating the Reproducibility of Psychological Science, facts on the ground, financial innovation, Francis Fukuyama: the end of history, future of work, general purpose technology, gentrification, Goodhart's law, green new deal, housing crisis, income inequality, index fund, indoor plumbing, industrial cluster, inflation targeting, intangible asset, interchangeable parts, invisible hand, job-hopping, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, knowledge worker, lockdown, low interest rates, low skilled workers, Marc Andreessen, market design, Martin Wolf, megacity, mittelstand, new economy, Occupy movement, oil shock, patent troll, Peter Thiel, Phillips curve, postindustrial economy, pre–internet, price discrimination, quantitative easing, QWERTY keyboard, remote working, rent-seeking, replication crisis, risk/return, Robert Gordon, Robert Metcalfe, Robert Shiller, Ronald Coase, Sam Peltzman, Second Machine Age, secular stagnation, shareholder value, Silicon Valley, six sigma, skeuomorphism, social distancing, superstar cities, the built environment, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, Uber for X, urban planning, We wanted flying cars, instead we got 140 characters, work culture , X Prize, Y2K

Also of interest in this context is one of the many time-honoured strategies that equity investors have used to make their lives simpler: the strategy of value investing, pioneered by Benjamin Graham, who was Warren Buffett’s mentor. In its simplest form, value investing involves buying “value” stocks—those whose shares are worth less than their accounts would suggest—and selling their opposites, so-called “glamour” stocks. An important study by Josef Lakonishok, Andrei Shleifer, and Robert Vishny showed that between 1968 and 1989, for example, a strategy of mechanistically buying value stocks and selling glamour stocks would have earned a healthy return of 6.3 percent per year.19 This insight formed a major part of some of the most cited papers in financial economics, helped Eugene Fama win a Nobel Prize, and informed the strategies of innumerable investment funds.

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Understanding Trends in Long Work Hours among U.S. Men, 1979–2004.” National Bureau of Economic Research working paper no. 11895. https://ideas.repec.org/p/nbr/nberwo/11895.html. Lachmann, Ludwig M. 1956. Capital and Its Structure. London: Bell and Sons. https://mises.org/library/capital-and-its-structure. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny. 1994. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance 49 (5): 1541–78. https://doi.org/10.1111/j.1540-6261.1994.tb04772.x. Lall, Subir, and Li Zeng. 2020. “Intangible Investment and Low Inflation: A Framework and Some Evidence.” International Monetary Fund working paper no. 20/190. https://papers.ssrn.com/abstract=3695369.

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Princeton, NJ: Princeton University Press. Philippon, Thomas. 2019. The Great Reversal: How America Gave Up on Free Markets. Cambridge, MA: Belknap Press of Harvard University Press. Piketty, Thomas. 2014. Capital in the Twenty-First Century. Cambridge, MA: Harvard University Press. Porta, Rafael La, Florencio Lopez-De-Silanes, Andrei Shleifer, and Robert W. Vishny. 1997. “Legal Determinants of External Finance.” Journal of Finance 52 (3): 1131. https://doi.org/10.2307/2329518. Posner, Eric, and E. Glen Weyl. 2018. Radical Markets: Uprooting Capitalism and Democracy for a Just Society. Princeton, NJ: Princeton University Press. Putnam, Robert. 1994.

The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bear Stearns, Bernie Madoff, Big Tech, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, digital rights, Donald Trump, double helix, driverless car, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Gregor Mendel, Hernando de Soto, income inequality, initial coin offering, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, power law, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Robert Solow, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, seminal paper, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, Tragedy of the Commons, transaction costs, Wolfgang Streeck

See Simeon Djankov, Edward Glaeser, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “The New Comparative Economics,” Journal of Comparative Economics 31, no. 4 (2003):595–619. 25. Rafael La Porta, Francesco Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny, “Law and Finance.” n ote s to c h a P te r 7 267 26. In their tenth anniversary paper, the authors emphasize that their findings are not about growth, but about financial market development; put differently, they reflect greater value of private assets but not necessarily enhanced economic well-being across the board. See Rafael La Porta, Francesco Lopez-de-Silanes, and Andrei Shleifer, “The Economic Consequences of Legal Origin,” Journal of Economic Literature 46, no. 2 (2008):285–332. 27.

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The free movement of goods, services and persons (including natural and legal persons) was established in the Treaty of Rome, which created the European common market, which later morphed into the European Communities. In 1992, the Maastricht Treaty created the European Union and extended the free movements to the free movement of capital. 52. Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “Corporate Ownership Around the World,” Journal of Finance 54, no. 2 (1999):471–517. 53. See also the discussion in chapter 2 about Kleros I, which was incorporated in the Cayman Islands. 54. See Michael Graetz, “Taxing International Income: Inadequate Principles, Outdated Concepts, and Unsatisfactory Policies,” in Follow the Money, ed.

The Logic of Life: The Rational Economics of an Irrational World by Tim Harford

activist fund / activist shareholder / activist investor, affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, behavioural economics, Berlin Wall, business cycle, colonial rule, company town, Daniel Kahneman / Amos Tversky, double entry bookkeeping, Dr. Strangelove, Edward Glaeser, en.wikipedia.org, endowment effect, European colonialism, experimental economics, experimental subject, George Akerlof, income per capita, invention of the telephone, Jane Jacobs, John von Neumann, Larry Ellison, law of one price, Martin Wolf, mutually assured destruction, New Economic Geography, new economy, Patri Friedman, plutocrats, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, spinning jenny, Steve Jobs, The Death and Life of Great American Cities, the market place, the strength of weak ties, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Tyler Cowen, women in the workforce, zero-sum game

It seems to have been a common practice among our ancestors during the violence of the feudal government. Smith might also have mentioned the French, because France was rapidly becoming more absolutist at the time. One indication is the population of cities, which we know from chapter 7 is a sound guide to prosperity. Economists Bradford DeLong and Andrei Shleifer have used city populations to chart the effects of absolutism in political rule. In 1500, Paris was Europe’s largest city, and the great (and relatively free) Italian city-states of Naples, Milan, and Venice were the only other cities with populations over one hundred thousand. By 1800, London was almost twice as large as Paris, Amsterdam was doing well, and other cities under British rule, such as Dublin, Manchester, and Edinburgh, were rapidly growing.

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“She was dissatisfied”: Jane Jacobs, The Economy of Cities, p. 51. The business guru Michael Porter: Michael Porter, “Clusters and the New Economics of Competition,” Harvard Business Review 76, no. 6 (November–December 1998): 77–90. A group of four economists: Edward L. Glaeser, Hedi D. Kallal, Jose A. Scheinkman, and Andrei Shleifer, “Growth in Cities,” Journal of Political Economy 100, no. 6(December 1992): 1126–52. Nor is this the only: Gianmarco Ottaviano and Giovanni Peri, “The Economic Value of Cultural Diversity: Evidence from US Cities,” NBER Working Paper 10904, November 2004, available at: ideas.repec.org/a/oup/jecgeo/v6y2006i1p9-44.html.

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Allen, “The British Industrial Revolution in Global Perspective: How Commerce Created the Industrial Revolution and Modern Economic Growth,” unpublished paper, 2006. “In all countries”: Smith, The Wealth of Nations, book 2, chapter 30, pars. 30–32. Twelve of Europe’s fifty-six largest cities: J. Bradford DeLong and Andrei Shleifer, “Princes and Merchants: City Growth Before the Industrial Revolution,” Journal of Law and Economics 36 (October 1993): 671–702, econ161.berkeley.edu/pdf_files/Princes.pdf. Europe started to become decisively richer: Daron Acemoglu, Simon Johnson, and James Robinson, “The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth,” American Economic Review 95, no. 3(June 2005): 546–79, econ-www.mit.edu/files/296.

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, Future Shock, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, junk bonds, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Michael Milken, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, Phillips curve, plutocrats, Post-Keynesian economics, price stability, profit maximization, public intellectual, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, W. E. B. Du Bois, We are all Keynesians now, working-age population, Y2K, Yom Kippur War

Morck, Randall, Andrei Shleifer, and Robert Vishny. 1990. “The Stock Market and Investment: Is the Market a Sideshow?” Brookings Papers on Economic Activity 2:157–215. Morgenson, Gretchen. 2008. “Everyone Out of the Security Pool.” New York Times, Sunday Business, November 16, p. BU-1. Morris, Stephen A., and Hyun Song Shin. 2004. “Liquidity Black Holes.” Review of Finance 8(1):1–18. ———. 2008. “Financial Regulation in a System Context.” Brookings Papers on Economic Activity 2. “Mr. Lodge on Finance.” 1908. New York Tribune, March 13, p. 3. Mullainathan, Sendhil, and Andrei Shleifer. 2005.

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They maintain that the mere fact that the major event did not happen cannot be taken to mean that the market was irrational. Maybe they are right. One cannot decisively prove that the stock market has been irrational. But in all of this debate no one has offered any real evidence to think that the volatility is rational.6 The price changes appear instead to be correlated with social changes of various kinds. Andrei Shleifer and Sendhil Mullainathan have observed the changes in Merrill Lynch advertisements. Prior to the stock market bubble, in the early 1990s, Merrill Lynch was running advertisements showing a grandfather fishing with his grandson. The ad was captioned: “Maybe you should plan to grow rich slowly.”

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit Banerjee, Esther Duflo

"World Economic Forum" Davos, Albert Einstein, Andrei Shleifer, business process, business process outsourcing, call centre, Cass Sunstein, charter city, clean water, collapse of Lehman Brothers, congestion charging, demographic transition, diversified portfolio, experimental subject, hiring and firing, Kickstarter, land tenure, low interest rates, low skilled workers, M-Pesa, microcredit, moral hazard, purchasing power parity, randomized controlled trial, Richard Thaler, school vouchers, Silicon Valley, The Fortune at the Bottom of the Pyramid, Thomas Malthus, tontine, urban planning

The point is that these vendors are sitting under what appears to be as close to a money tree as we are likely to find anywhere. Why don’t they shake it a bit more? How can we square this with the sophisticated financial planning that we encountered with Jennifer Auma? THE PSYCHOLOGY OF SAVINGS Understanding the way people think about the future can help resolve these apparent contradictions. Andrei Shleifer, probably the best exponent of the theory that many people sometimes do silly things (he coined, or at least popularized, the term “noise traders” to characterize the behavior of naïve stock traders who are ruthlessly exploited by sophisticated traders), who had just returned from Kenya, shared with us something that he had noticed there: a huge difference between the farms run by a group of nuns, which were lush and vibrant, and those run by their neighbors, which were much less impressive.

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Our fathers, Dipak Banerjee and Michel Duflo, taught us the importance of getting the argument right. We do not always measure up to the exacting standard of precision they set for themselves, but we came to understand why it is the right standard. The genesis of this book was a conversation in 2005 with Andrei Shleifer, who was then editing the Journal of Economic Perspectives. He asked us to write something about the poor. While we were writing that piece, which was eventually called “The Economic Lives of the Poor,” we realized that this could be a way to bring together the many disparate facts and ideas that we have spent our lives trying to fathom.

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However, we would still like to acknowledge Josh Angrist, Rukmini Banerji, Annie Duflo, Neelima Khetan, Michael Kremer, Andreu Mas Colell, Eric Maskin, Sendhil Mullainathan, Andy Newman, Rohini Pande, Thomas Piketty, and Emmanuel Saez, who, in their own individual ways, did more to shape the thoughts that went into this book than they probably realize. We hope that they are not entirely put off by the result. We benefited immensely from the comments of a number of people on earlier drafts of the book: Daniel Cohen, Angus Deaton, Pascaline Dupas, Nicholas Kristof, Greg Lewis, Patrick McNeal, Rohini Pande, Ian Parker, Somini Sengupta, Andrei Shleifer, and Kudzai Takavarasha. Emily Breza and Dominic Leggett read through every chapter several times and came up with important ways to improve the book. The book is immensely better for that, though probably not as good as they could have made it if we had been less impatient to get it done. Our editor at PublicAffairs, Clive Priddle, was wonderful to work with: The book came to life when he took charge.

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Alan Greenspan, Andrei Shleifer, banking crisis, Bear Stearns, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Glass-Steagall Act, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, low interest rates, market bubble, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, savings glut, shareholder value, short selling, statistical model, subprime mortgage crisis, too big to fail, transaction costs, very high income

Lee Lockwood and Christian Opp carefully checked the manuscript for technical economic errors and in the process made valuable suggestions for improving the book. Michael Aronson, Douglas Baird, Larry Bernstein, Michael Boudin, Nathan Christensen, Kenneth Dam, Benjamin Friedman, Rebecca Haw, Ashley Keller, William Landes, Jonathan Lewinsohn, Jennifer Nou, Charlene Posner, Eric Posner, Kenneth Posner, Raghuram Rajan, Andrew Rosenfield, Andrei Shleifer, and Luigi Zingales gave me extremely helpful comments on a previous draft. Friedman's help with my project deserves a special acknowledgment. I also owe special thanks to Aronson, my editor at the Harvard University Press, for his encouragement and deft management of this project, as well as for many insightful comments.

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Rajan, "Has Financial Development Made the World Riskier?" in The Greenspan Era: Lessons for the Future: A Symposium Spon- sored hy the Federal Reserve Bank of Kansas City (2005), 213. Robert J. Shiller, The Suhprime Solution: How To- day's Financial Crisis Happened, and What to Do about It (2008). Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (2000). Mark Zandi, Financial Shock: A 5600 hmk at the Suhprime Mortgage Implosion, and How to Avoid the Next Financial Crisis (2008). Luigi Zingales, "The Future of Securities Regula- tion" (University of Chicago, Booth Graduate School of Business, Dec. 2008).

Falling Behind: Explaining the Development Gap Between Latin America and the United States by Francis Fukuyama

Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, creative destruction, crony capitalism, European colonialism, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, income inequality, income per capita, land reform, land tenure, Monroe Doctrine, moral hazard, New Urbanism, oil shock, open economy, public intellectual, purchasing power parity, rent-seeking, Ronald Reagan, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, upwardly mobile, Washington Consensus, zero-sum game

Specifically, “Third World countries are poor because the institutional constraints define a set of payoffs to political/economic activity that do not encourage productive activity.” See North, Institutions, Institutional Change, and Economic Performance (Cambridge: Cambridge University Press, 1990), p. 110. 5. On the importance of judicial systems, see Rafael La Porta, Florencio López de Silanes, Andrei Shleifer, and Robert M. Vishny, “Law and Finance,” Journal of Political Economy 106 (1998): 1113–1155. John H. Coatsworth and Gabriel Tortella Casares analyze the effect of the Spanish judicial system on the development of Spain and Mexico in their initial periods; see John H. Coatsworth and Gabriel Tortella Casares, Institutions and Long-Run Economic Performance in Mexico and Spain, 1800–2000, Working Paper 02/03-1 (Cambridge, MA: David Rockefeller Center for Latin American Studies, Harvard University, 2003).

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Source: Polity IV Project on Political Regime Characteristics and Transitions, 1800–2004, Center for Global Policy, George Mason University and Center for International Development and Conflict Management, University of Maryland (dynamic dataset by subscription). 12 11 10 PAN PER JAM 9 CHL URY ARG MEX BRA VEN ECU DOM COL BOL 8 7 6 5 0 5 10 15 20 25 Number of Procedures to Create a Business figure 7.5 Log Gross Domestic Product (GDP) Per Capita (2004 Purchasing Power Parity) vs. Number of Procedures Needed to Create a Business. Source: Simeon Djankov, Rafael La Porta, Florencio López-de-Silanes, and Andrei Shleifer, “The Regulation of Entry,” in Quarterly Journal of Economics 117 (2002): 1–37. Log PPP GDP Per Capita in Constant 2000 USD 12 11 10 ARG MEX PAN DOM BRA COL VEN PER SLV PRY GTMECUGUY JAM NIC HND BOL 9 8 CRI URY CHL HTI 7 6 5 −3 −2.5 −2 −1.5 −1 −0.5 0 0.5 1 Rule of Law Index (World Bank) 1.5 2 2.5 figure 7.6 Log Gross Domestic Product (GDP) Per Capita (2004 Purchasing Power Parity) vs.

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See, for example, Guido Tabellini, “Culture and Institutions: Economic Development in the Regions of Europe,” unpublished manuscript, Bocconi University, Milan, Italy, 2005. 24. Daron Acemoglu, Simon Johnson, and James A. Robinson, “Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review 91 (2001): 1369–1401. 25. Simeon Djankov, Rafael La Porta, Florencio López-de-Silanes, and Andrei Shleifer, “The Regulation of Entry,” Quarterly Journal of Economics 117 (2001): 1–37. See also Hernando de Soto, The Other Path (New York: Harper & Row, 1989). 26. Acemoglu, Johnson, and Robinson, “Colonial Origins of Comparative Development.” 27. Alfred W. Crosby, Ecological Imperialism (New York: Cambridge University Press, 1986). 28.

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

The crash of 1987 underlined these doubts: When the market’s valuation of corporate America changed by a fifth in a single trading day, it was hard to believe that the valuation deserved much deference. “If the efficient markets hypothesis was a publicly traded security, its price would be enormously volatile,” the Harvard economists Andrei Shleifer and Lawrence Summers wrote mockingly in 1990. “But the stock in the efficient markets hypothesis—at least as it has traditionally been formulated—crashed along with the rest of the market on October 19, 1987.”8 The acknowledgment of the limits to market efficiency had a profound effect on hedge funds.

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After contributing to this literature, Asness headed off to Wall Street and soon opened his hedge fund. In similar fashion, the Nobel laureates Myron Scholes and Robert Merton, whose formula for pricing options grew out of the efficient-markets school, signed up with the hedge fund Long-Term Capital Management. Andrei Shleifer, the Harvard economist who had compared the efficient-market theory to a crashing stock, helped to create an investment company called LSV with two fellow finance professors. His coauthor, Lawrence Summers, made the most of a gap between stints as president of Harvard and economic adviser to President Obama to sign on with D.

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They might know that Japan’s equity bubble—or the dot-com bubble or the mortgage bubble—makes no sense, but they cannot borrow enough to bet against it with the force that would deflate it. This is why there is a limit to the power of contrarians. It is why markets swing in trends and why finance is prone to bubbles. This insight—christened “the limits to arbitrage” by the economists Andrei Shleifer and Robert Vishny—points to an opportunity that Jones could sense intuitively. Markets can move away from fundamental value because speculators lack the muscle to challenge the consensus; a trend can keep going far beyond the point at which it ceases to be rational. But if you are a trader with more ammunition and courage than the rest, you can ambush the market and jolt it out of its sleepwalk.

Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors by Wesley R. Gray, Tobias E. Carlisle

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, asset allocation, Atul Gawande, backtesting, beat the dealer, Black Swan, book value, business cycle, butter production in bangladesh, buy and hold, capital asset pricing model, Checklist Manifesto, cognitive bias, compound rate of return, corporate governance, correlation coefficient, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, Edward Thorp, Eugene Fama: efficient market hypothesis, financial engineering, forensic accounting, Henry Singleton, hindsight bias, intangible asset, Jim Simons, Louis Bachelier, p-value, passive investing, performance metric, quantitative hedge fund, random walk, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, shareholder value, Sharpe ratio, short selling, statistical model, stock buybacks, survivorship bias, systematic trading, Teledyne, The Myth of the Rational Market, time value of money, transaction costs

In this instance, risk is defined as the additional volatility of the value stocks. Prolific finance researchers and founders of modern quantitative asset management analysis Eugene Fama and Ken French made this argument most forcefully in their 1992 paper, “The Cross-Section of Expected Stock Returns.” Behavioral finance researchers Joseph Lakonishok, Andrei Shleifer, and Robert Vishny argue in their 1994 paper, “Contrarian Investment, Extrapolation, and Risk,”25 that value strategies produce better returns, not because they are fundamentally riskier, but because they are contrarian to the “naïve” strategies followed by other investors. Naïve investors extrapolate poor earnings performance too far into the future, assume a downward trend in stock prices will persist or simply overreact to bad news, leading them to oversell stocks to the point that they are undervalued.

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Further, if one metric underperforms for an extended period, the other two might counter its influence. CHAPTER 7 Price Ratios: A Horse Race Value strategies yield higher returns because these strategies exploit suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier. —Josef Lakonishok, Andrei Shleifer, and Robert Vishny, “Contrarian Investment, Extrapolation, and Risk”1 The empirical evidence is unqualified: value stocks have beaten both glamour stocks and the market over the long term. This raises two obvious questions: (1) why would anyone buy glamour stocks, and (2) which measure of value has generated the best returns?

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

Abraham Wald, Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, behavioural economics, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, classic study, clean water, conceptual framework, congestion pricing, constrained optimization, continuous double auction, creative destruction, data science, deferred acceptance, Donald Trump, Dutch auction, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, opioid epidemic / opioid crisis, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, power law, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Solow, Ronald Coase, school choice, school vouchers, scientific management, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, techno-determinism, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, WarGames: Global Thermonuclear War, winner-take-all economy

Wall Street participants work harder to maximize their earnings, but in doing so, they end up poorer than the community players. This irony shows how the market, by undermining our concern for others and beliefs in the intentions of others, can end up shrinking rather than growing the economic pie. Competition Can Make Us Unethical In a 2004 essay, Harvard economist Andrei Shleifer speculated that competitive markets—the holy grail of free marketers—have the potential to make us not just selfish but downright unethical. As his point of departure, Shleifer presumes that ethical conduct is what economists call a normal good—something we consume more of as we get richer. (Ramen noodles, perennial staple of poor college students, are a classic example of an inferior good, where you consume less of it once you can afford not to.)7 The owners of a company with fat profit margins and an unassailable position in the marketplace—Google or Microsoft, for example—can afford to be honest and charitable.

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Emily Pronin, Thomas Gilovich, and Lee Ross, “Objectivity in the Eye of the Beholder: Divergent Perceptions of Bias in Self versus Others,” Psychological Review 111, no. 3 (2004): 781. 6. The experiment was run with subjects drawn from the Israeli Defense Forces. For Hebrew-speaking subjects, the labels were the Bursa and Kommuna Games. 7. Andrei Shleifer, “Does Competition Destroy Ethical Behavior?” The American Economic Review 94, no. 2 (2004): 414. INDEX Abidjan, Ivory Coast, 167–168 Adfibs.com, 69 adverse selection, 48, 51–55, 57, 59 advertising, as money burning, 70–71 Super Bowl advertising, 70–71 AdWords, 14, 101 Airbnb, 3, 6, 50, 109, 125, 170–172 Akerlof, George, 43–51, 58–59, 64, 112 Alaskoil experiment, 55–57, 58–59 algebraic topology, 44–45 Amazon, 2, 3, 16, 50, 51, 52, 59, 74, 91, 95, 97, 108, 110, 119, 126, 128–129 American Express, 115–116 America’s Second Harvest, 154–160 Amoroso, Luigi, 21 Angie’s List, 120 “animal spirits,” 50 applied theory in economics, 45, 50, 75–76 Arnold, John, 156–158, 160 Arrow, Kenneth, 30–34, 36–37, 40, 76, 117, 180 ascending price English auctions, 83, 100 asymmetric information, 41, 44–55 attribution theory, 177–178 auctions AdWords, 14, 101 auction theory, 82–84 coat hooks, 151–152, 174 design, 14, 101–102 first-price sealed-bid, 86–87, 99–100 first-price (live), 84 internet, 94–97 types of, 81–82 wireless spectrum, 102–103 See also eBay; Vickrey auctions AuctionWeb, 40 Ausubel, Larry, 98 Azoulay, Pierre, 112 Bank of America, 113–115 barriers to entry, in marketplace, 173 baseball posting system, 79–81 Bazerman, Max, 55–57 Becker, Gary, 35, 161–162 Berman, Eli, 67 Berners-Lee, Tim, 41–42 Big Data, Age of, 15 Blu-ray-HD DVD format war, Sony, 125–126 Book Stacks Unlimited, 42–43 Boston public schools, 144–149 Boston University MBA students experiment (Bazerman and Samuelson), 55–57, 58–59 See also Alaskoil experiment bridge design, 141–142 Brown, William P., 83–84 Brownian motion, 28–29 cab drivers, Uber vs., 169–170, 172 Camp, Garrett, 170 candle auctions, 82 capitalism, free-market, 172–173 car service platform, 169–171 cash-back bonus, 116 cash-for-sludge transactions, 167–169 See also Summers, Larry centralized clearinghouses, 140–141 Champagne fairs, 105–106, 126–128 Changi POW camp, 175–177 Le Chatelier, Henry Louis, 29 Le Chatelier’s principle, 29 cheap talk, 62–66, 69 chess, difference between Cold War and, 26 See also poker, bluffing in child labor, 180 cigarettes, as currency in German POW camp, 8–9 Clarke, Edward, 93 Clavell, James, 175 clerkship offers, with federal judges, 140 coat hook, 151–152, 174 Codes of the Underworld (Gambetta), 68 Cold War, difference between chess and, 26 See also poker, bluffing in Collectible Supplies, 128–129 “College Admissions and the Stability of Marriage” (Gale and Shapley), 137 commitment, signs of, 62–63, 69–71, 72–75 community game, 178–179 competition models of, 35, 166, 172–173 platform, 124–126 unethical conduct with, 180–181 “Competition is for Losers” (Thiel), 173 competitive equilibrium, existence of, 29, 31–34, 36–37, 40, 45, 76 competitive markets, 35, 124–126, 172–174, 180–181 See also platforms competitive signaling, 70–71 congestion pricing model, 86, 94 constrained optimization, 85–86, 133 contractorsfromhell.com, 120 copycat competitors, 172–173 corporate philanthropy, 72–75 Cowles, Alfred, 25, 27 Cowles Commission for Research in Economics, 25, 27, 31, 134 “creative destruction,” 50 credit card platforms, 113–116, 123–124 criminal organizations, informational challenges of, 68 currency, at Stalag VII-A POW camp, 8–9 customer feedback, 52, 74–75 Davis, Harry, 154, 157 Debreu, Gérard, 20, 24, 25, 32–33, 36–37 decentralized match, 139–140 deferred acceptance algorithm, 137–141, 145–149 Delmonico, Frank, 164 descending price auctions, 81–82 design, auction, 14, 101–102 Digital Dealing (Hall), 94 Discover card, 115–116 distribution of income, 22 Domar, Evsey, 36–37 Dorosin, Neil, 142–144 Douglas Aircraft Company, 25 Dow, Bob, 1–2 Dow, Edna, 1–2 Drèze, Jacques, 85–86 dumping toxic waste, transactions for, 167–169 Dutch auctions, 81–82 dysfunction, market, 36, 75–77, 143 eBay adverse selection on, 51–55, 57 auction listings, 94–97 concerns on model for, 43, 46, 48 on seller motivation for giving to charities, 73–75 start of, 39–41 as two-sided market, 109, 119 e-commerce, 41–43, 52–55 “The Economic Organization of a P.O.W.

Smart Money: How High-Stakes Financial Innovation Is Reshaping Our WorldÑFor the Better by Andrew Palmer

Affordable Care Act / Obamacare, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, behavioural economics, Black Monday: stock market crash in 1987, Black-Scholes formula, bonus culture, break the buck, Bretton Woods, call centre, Carmen Reinhart, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Graeber, diversification, diversified portfolio, Edmond Halley, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, family office, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, Google Glasses, Gordon Gekko, high net worth, housing crisis, Hyman Minsky, impact investing, implied volatility, income inequality, index fund, information asymmetry, Innovator's Dilemma, interest rate swap, Kenneth Rogoff, Kickstarter, late fees, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, low interest rates, margin call, Mark Zuckerberg, McMansion, Minsky moment, money market fund, mortgage debt, mortgage tax deduction, Myron Scholes, negative equity, Network effects, Northern Rock, obamacare, payday loans, peer-to-peer lending, Peter Thiel, principal–agent problem, profit maximization, quantitative trading / quantitative finance, railway mania, randomized controlled trial, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Savings and loan crisis, short selling, Silicon Valley, Silicon Valley startup, Skype, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Thales of Miletus, the long tail, transaction costs, Tunguska event, unbanked and underbanked, underbanked, Vanguard fund, web application

“I don’t think we should celebrate speedy growth in new areas,” says one of the most senior figures on Wall Street. “Growth on a rapid scale means either a brilliant discovery or a mistake: history suggests it is likely to be a mistake.” One of the most thought-provoking academic papers to come out of the 2007–2008 financial crisis is a study by Nicola Gennaioli of Pompeu Fabra University, Andrei Shleifer of Harvard University, and Robert Vishny of the University of Chicago, called “Neglected Risks, Financial Innovation and Financial Fragility.” It suffers the usual curses of the economic paper: a crushingly formulaic structure and an enormous amount of algebra. In its very broad outlines, it describes a process of financial euphoria leading to fragility and then crisis that is familiar from the works of economists like Hyman Minsky.

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Peter Tufano, “Financial Innovation and First-Mover Advantages,” Journal of Financial Economics (1989); Peter Tufano, “Financial Innovation,” Handbook of the Economics of Finance (2003). 5. “The Dojima Rice Market and the Origins of Futures Trading” (Harvard Business School Case Study, November 2010). 6. Minos Zombanakis, “The Life and Good Times of Libor,” Financial World (June 2012). 7. Nicola Gennaioli, Andrei Shleifer, and Robert Vishny, “Neglected Risks, Financial Innovation and Financial Fragility,” Journal of Financial Economics (2012). 8. “Financial Globalisation: Retreat or Reset?” (McKinsey Global Institute, February 2013). 9. Marcin Kasperczyk and Philipp Schnabl, “How Safe Are Money Market Funds?

Humans as a Service: The Promise and Perils of Work in the Gig Economy by Jeremias Prassl

3D printing, Affordable Care Act / Obamacare, Airbnb, algorithmic management, Amazon Mechanical Turk, Andrei Shleifer, asset light, autonomous vehicles, barriers to entry, call centre, cashless society, Clayton Christensen, collaborative consumption, collaborative economy, collective bargaining, creative destruction, crowdsourcing, death from overwork, Didi Chuxing, disruptive innovation, Donald Trump, driverless car, Erik Brynjolfsson, full employment, future of work, George Akerlof, gig economy, global supply chain, Greyball, hiring and firing, income inequality, independent contractor, information asymmetry, invisible hand, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kevin Roose, Kickstarter, low skilled workers, Lyft, machine readable, Mahatma Gandhi, Mark Zuckerberg, market friction, means of production, moral hazard, Network effects, new economy, obamacare, pattern recognition, platform as a service, Productivity paradox, race to the bottom, regulatory arbitrage, remote working, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Rosa Parks, scientific management, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley billionaire, Silicon Valley ideology, Simon Singh, software as a service, Steve Jobs, TaskRabbit, TechCrunch disrupt, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, transaction costs, transportation-network company, Travis Kalanick, two tier labour market, two-sided market, Uber and Lyft, Uber for X, uber lyft, union organizing, warehouse automation, work culture , working-age population

This is neither the time nor place to delve into arcane public finance design questions—but, as I have argued elsewhere with my Oxford colleagues Professors Abi Adams and Judith Freedman, any solution focused on employment law alone will not gain traction unless the underlying fiscal incentives are equally balanced.56 Portable Ratings Another problem that current labour standards fail to address is the power that algorithmic ratings have in tying workers into particular platforms: as long as better work and higher pay are limited to workers with high ratings, individuals will struggle to diversify their crowdwork portfolio and end up tied into one company’s ecosystem. A system of portable ratings would empower workers to follow up grievances and negotiate for better condi- tions—or to move on to a different platform. European Union law provides some interesting pointers as to how such a system could be designed. In a famous 1988 paper, Andrei Shleifer and Lawrence Summers argued that hostile takeovers expropriated value by breaching trust between * * * 112 Disrupting the Disruptors incumbent management and their employees—that is, by allowing the new shareholders to seize workers’ long-term investment in firm-specific human capital on the implicit understanding that they would receive a fair share in the resulting economic gains.57 Platforms’ rating mechanisms expose work- ers to similar dangers: carefully built-up scores can become worthless over- night when a platform’s business model changes or the user is deactivated.

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Another major set of concerns relates to the enforcement of gig-economy workers’ rights—that is, that low claim values can dramatically reduce incentives to litigate: Abi Adams and Jeremias Prassl, ‘Vexatious claims: challenging the case for employment tribunal fees’ (2017) 80(2) Modern Law Review 412. 57. Andrei Shleifer and Lawrence Summers, ‘Breach of trust in hostile takeovers’ (1987) NBER Working Paper No. 2342. 58. For a detailed discussion, see Bob Hepple, ‘Workers’ rights in mergers and take- overs: the EEC proposals’ (1976) 5(1) Industrial Law Journal 197. 59. Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) [2016] OJ L119/1, Art. 20(1).

Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants by Maurice E. Stucke, Ariel Ezrachi

"Friedman doctrine" OR "shareholder theory", affirmative action, Airbnb, Alan Greenspan, Albert Einstein, Andrei Shleifer, behavioural economics, Bernie Sanders, Boeing 737 MAX, Cambridge Analytica, Cass Sunstein, choice architecture, cloud computing, commoditize, corporate governance, Corrections Corporation of America, Credit Default Swap, crony capitalism, delayed gratification, disinformation, Donald Trump, en.wikipedia.org, fake news, Garrett Hardin, George Akerlof, gig economy, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Google Chrome, greed is good, hedonic treadmill, incognito mode, income inequality, income per capita, independent contractor, information asymmetry, invisible hand, job satisfaction, labor-force participation, late fees, loss aversion, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, market fundamentalism, mass incarceration, Menlo Park, meta-analysis, Milgram experiment, military-industrial complex, mortgage debt, Network effects, out of africa, Paradox of Choice, payday loans, Ponzi scheme, precariat, price anchoring, price discrimination, profit maximization, profit motive, race to the bottom, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Shiller, Ronald Reagan, search costs, shareholder value, Sheryl Sandberg, Shoshana Zuboff, Silicon Valley, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Stanford prison experiment, Stephen Hawking, sunk-cost fallacy, surveillance capitalism, techlash, The Chicago School, The Market for Lemons, The Myth of the Rational Market, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Davenport, Thorstein Veblen, Tim Cook: Apple, too big to fail, Tragedy of the Commons, transaction costs, Uber and Lyft, uber lyft, ultimatum game, Vanguard fund, vertical integration, winner-take-all economy, Yochai Benkler

News & World Report, September 9, 2018, https://www.usnews.com/education/best-colleges/articles/how-us-news-calculated-the-rankings. 89.Robert H. Frank, The Darwin Economy: Liberty, Competition, and the Common Good (Princeton University Press 2011) 16, 138. 90.Abhijit Vinayak Banerjee, “Inside the Machine: Toward a New Development Economics,” Boston Review 32, no. 2 (2007), http://bostonreview.net/abhijit-vinayak-banjeree. 91.Andrei Shleifer, “Does Competition Destroy Ethical Behavior?,” American Economic Review 94, no. 2 (May 2004): 414–16, https://doi.org/10.1257/0002828041301498 (discussing how competition can help spread child labor, corruption and bribery of government officials to reduce the amount companies owe in tariffs and taxes, excessive executive pay, manipulated earnings to lower corporations’ cost of capital, and the involvement of universities in commercial activities). 92.Maurice E.

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Chapter 7: The Privatizers: When in Doubt, Privatize! 1.Adrian T. Moore, Private Prisons: Quality Corrections at a Lower Cost (Los Angeles, CA: Reason Public Policy Institute, Policy Study No. 240, 1999), https://reason.org/wp-content/uploads/files/d14ffa18290a9aeb969d1a6c1a9ff935.pdf. 2.Oliver Hart, Andrei Shleifer, and Robert W. Vishny, “The Proper Scope of Government: Theory and an Application to Prisons,” Quarterly Journal of Economics 112, no. 4 (November 1997): 1127–61, https://doi.org/10.1162/003355300555448. 3.Invoking the competition ideology, and money savings, in the context of prisons has a long—and dishonorable—history.

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., 881 F.2d 1396, 1402 (7th Cir. 1989). 25.Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325, 1338 (7th Cir. 1986). 26.Kumpf v. Steinhaus, 779 F.2d 1323, 1326 (7th Cir. 1985). 27.Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: Harper Business, 2009), 192; Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (New York: Oxford University Press, 2000), 2–5. 28.Joseph Ratzinger Benedict XVI, “Church and Economy: Responsibility for the Future of the World Economy,” Communio International Catholic Review 13, no. 3 (Fall 1986): 199, 200, https://www.communio-icr.com/files/ratzinger13-3.pdf. 29.Robert H.

EuroTragedy: A Drama in Nine Acts by Ashoka Mody

Alan Greenspan, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, book scanning, book value, Bretton Woods, Brexit referendum, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, fear index, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, global macro, global supply chain, global value chain, hiring and firing, Home mortgage interest deduction, income inequality, inflation targeting, Irish property bubble, Isaac Newton, job automation, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, Kickstarter, land bank, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, low interest rates, low-wage service sector, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, mortgage tax deduction, neoliberal agenda, offshore financial centre, oil shock, open borders, pension reform, precautionary principle, premature optimization, price stability, public intellectual, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Solow, short selling, Silicon Valley, subprime mortgage crisis, The Great Moderation, The Rise and Fall of American Growth, too big to fail, total factor productivity, trade liberalization, transaction costs, urban renewal, working-age population, Yogi Berra

A 1990 study by the Paris-​based Organisation for Economic Co-​operation and Development (OECD) reported that the Italian government’s industrial subsidy bill was 16 percent of manufacturing value-​added, the highest among OECD economies, matched only by similarly generous Greek subsidies.246 Corruption did decline somewhat in the 1990s, as popular demand for greater government accountability and judicial prosecution of corrupt politicians weakened the Christian Democratic Party’s grip on power. However, as economists Andrei Shleifer and Robert Vishny explain, once corruption is widespread, it is hard to roll back.247 In Italy, political scientist 1400 1200 1000 800 600 400 200 0 1970 72 74 76 78 80 82 84 86 88 90 92 94 96 98 Figure 2.7. The depreciating lira. (Number of liras for one D-​mark) Source: Banca d’Italia. https://tassidicambio.bancaditalia.it/timeSeries. 118   e u r o t r a g e d y Sergio Fabbrini says, “the institutional structure shaped by half a century of cartel politics” proved “sticky.”248 There was little incentive to shine “light in dark corners,” and the networks of political corruption kept reproducing and evolving.249 Similarly, Judt writes, “In the 1950s, large-​scale corruption was a near-​monopoly of Christian Democrats; in later decades the Socialists who governed the great cities of the North emulated them with considerable success.”250 Through the 1990s, the international watchdog Transparency International ranked Italy the most corrupt Western market economy.251 Italians remained unable to establish a consensus for investing in their country’s future.

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Papandreou-​ style populism inevitably carried on; the networks of entitlement were so entrenched that it was easier for the New Democracy government to align itself with and participate in those networks rather than try to buck them.50 Greece was in a high-​corruption, low-​productivity trap. Economists Kevin Murphy, Andrei Shleifer, and Robert Vishny explain that once the extent of corruption exceeds a threshold, the incentives and institutions to counteract corruption weaken.51 While corruption offers easy rewards, the expected returns from risky long-​term investments stay low because corrupt officials might expropriate hard-​earned gains.

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Hans-​Böckler-​Stiftung Working Paper 179, May. Geertz, Clifford. 1963. Agricultural Involution: The Processes of Ecological Change in Indonesia. Berkeley: University of California Press. Geithner, Timothy F. 2014. Stress Test: Reflections on Financial Crises. New York: Crown/​Archetype. Kindle edition. Gennaioli, Nicola, Andrei Shleifer, and Robert Vishny. 2014. “Finance and the Preservation of Wealth.” Quarterly Journal of Economics 129, no. 3: 1221–​1254. German Federal Constitutional Court (Bundesverfassungsgericht). 1993. “Judgment on the Maastricht Treaty,” October 12. Full text in German reported in Official Court Reports [BVerfGE] 89, 155.

SuperFreakonomics by Steven D. Levitt, Stephen J. Dubner

agricultural Revolution, airport security, An Inconvenient Truth, Andrei Shleifer, Atul Gawande, barriers to entry, behavioural economics, Bernie Madoff, Boris Johnson, call centre, clean water, cognitive bias, collateralized debt obligation, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, deliberate practice, Did the Death of Australian Inheritance Taxes Affect Deaths, disintermediation, endowment effect, experimental economics, food miles, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), John Nash: game theory, Joseph Schumpeter, Joshua Gans and Andrew Leigh, longitudinal study, loss aversion, Louis Pasteur, market design, microcredit, Milgram experiment, Neal Stephenson, ocean acidification, oil shale / tar sands, patent troll, power law, presumed consent, price discrimination, principal–agent problem, profit motive, randomized controlled trial, Richard Feynman, Richard Thaler, selection bias, South China Sea, Stanford prison experiment, Stephen Hawking, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, ultimatum game, urban planning, William Langewiesche, women in the workforce, young professional

He argued, for instance, that the same person who might be purely selfish in business could be exceedingly altruistic among people he knew—although, importantly (Becker is an economist, after all), he predicted that altruism even within a family would have a strategic element. Years later, the economists Doug Bernheim, Andrei Shleifer, and Larry Summers empirically demonstrated Becker’s point. Using data from a U.S. government longitudinal study, they showed that an elderly parent in a retirement home is more likely to be visited by his grown children if they are expecting a sizable inheritance. But wait, you say: maybe the offspring of wealthy families are simply more caring toward their elderly parents?

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Levitt, “The Effect of Prison Population Size on Crime Rates: Evidence from Prison Overcrowding Litigation,” The Quarterly Journal of Economics 11, no. 2 (May 1996). FAMILY ALTRUISM?: See Gary Becker, “Altruism in the Family and Selfishness in the Marketplace,” Economica 48, no. 189, New Series (February 1981); and B. Douglas Bernheim, Andrei Shleifer, and Lawrence H. Summers, “The Strategic Bequest Motive,” Journal of Political Economy 93, no. 6 (December 1985). AMERICANS ARE FAMOUSLY ALTRUISTIC: These figures are drawn from an Indiana University Center on Philanthropy study. From 1996 to 2006, overall American giving increased from $139 billion to $295 billion (inflation-adjusted), which represents an increase from 1.7% of GDP to 2.6% of GDP.

The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated by Gautam Baid

Abraham Maslow, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, Albert Einstein, Alvin Toffler, Andrei Shleifer, asset allocation, Atul Gawande, availability heuristic, backtesting, barriers to entry, beat the dealer, Benoit Mandelbrot, Bernie Madoff, bitcoin, Black Swan, book value, business process, buy and hold, Cal Newport, Cass Sunstein, Checklist Manifesto, Clayton Christensen, cognitive dissonance, collapse of Lehman Brothers, commoditize, corporate governance, correlation does not imply causation, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, deep learning, delayed gratification, deliberate practice, discounted cash flows, disintermediation, disruptive innovation, Dissolution of the Soviet Union, diversification, diversified portfolio, dividend-yielding stocks, do what you love, Dunning–Kruger effect, Edward Thorp, Elon Musk, equity risk premium, Everything should be made as simple as possible, fear index, financial independence, financial innovation, fixed income, follow your passion, framing effect, George Santayana, Hans Rosling, hedonic treadmill, Henry Singleton, hindsight bias, Hyman Minsky, index fund, intangible asset, invention of the wheel, invisible hand, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jeff Bezos, John Bogle, Joseph Schumpeter, junk bonds, Kaizen: continuous improvement, Kickstarter, knowledge economy, Lao Tzu, Long Term Capital Management, loss aversion, Louis Pasteur, low interest rates, Mahatma Gandhi, mandelbrot fractal, margin call, Mark Zuckerberg, Market Wizards by Jack D. Schwager, Masayoshi Son, mental accounting, Milgram experiment, moral hazard, Nate Silver, Network effects, Nicholas Carr, offshore financial centre, oil shock, passive income, passive investing, pattern recognition, Peter Thiel, Ponzi scheme, power law, price anchoring, quantitative trading / quantitative finance, Ralph Waldo Emerson, Ray Kurzweil, Reminiscences of a Stock Operator, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk-adjusted returns, Robert Shiller, Savings and loan crisis, search costs, shareholder value, six sigma, software as a service, software is eating the world, South Sea Bubble, special economic zone, Stanford marshmallow experiment, Steve Jobs, Steven Levy, Steven Pinker, stocks for the long run, subscription business, sunk-cost fallacy, systems thinking, tail risk, Teledyne, the market place, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, time value of money, transaction costs, tulip mania, Upton Sinclair, Walter Mischel, wealth creators, Yogi Berra, zero-sum game

They found, on average, that the stocks these investors bought underperformed the market by 2.7 percentage points over the subsequent year, whereas the stocks they sold outperformed the market by 0.5 points in the subsequent year.11 Similarly, in a paper published by the Brookings Institution, economists Josef Lakonishok, Andrei Shleifer, and Robert Vishny showed that the stock trades made by pension fund managers subtracted 0.78 percent from the returns they would have earned by keeping their portfolios constant.12 When we trade excessively, the only people who become rich are the intermediaries and brokers. Consider a startling calculation to open your eyes to this fact.

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Gaither and Alma E Cavazos-Gaither, Mathematically Speaking: A Dictionary of Quotations (Boca Raton, FL: CRC Press, 1998). 11. Brad M. Barber and Terrance Odean,” Why Do Investors Trade Too Much?” (research summary, University of California Davis Graduate School of Management, Davis, CA, 2006), https://www.safalniveshak.com/wp-content/uploads/2012/07/Why-Do-Investors-Trade-Too-Much.pdf. 12. Josef Lakonishok, Andrei Shleifer, and Robert Vishny, “The Structure and Performance of the Money Management Industry,” Brookings Papers: Macroeconomics 1992, https://scholar.harvard.edu/files/shleifer/files/structure_performance.pdf. 13. Graham and Zweig, The Intelligent Investor. 14. Sheeraz Raza, “Munger Quotes,” ValueWalk, April 4, 2016, https://www.valuewalk.com/2016/04/charlie-munger-quotes-2. 32.

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McKinsey & Company, April 2010. https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/why-value-value-and-defending-against-crises. Koller, Tim, Marc Goedhard, and David Wessels. Valuation: Measuring and Managing the Value of Companies, 6th ed. Hoboken, NJ: Wiley, 2015. Kurzweil, Ray. The Singularity Is Near: When Humans Transcend Biology. London: Penguin, 2006. Lakonishok, Josef, Andrei Shleifer, and Robert Vishny. “The Structure and Performance of the Money Management Industry.” Brookings Papers: Macroeconomics 1992. https://scholar.harvard.edu/files/shleifer/files/structure_performance.pdf. Latimore, Ed (@EdLatimore). Twitter, April 15, 2018. https://twitter.com/EdLatimore/status/1156550021363486721.

The Curse of Cash by Kenneth S Rogoff

Alan Greenspan, Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Dr. Strangelove, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, government statistician, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, low interest rates, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, The Rise and Fall of American Growth, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

Overall GDP is similar to that of the United States, but the share of Europe’s shadow economy is more than double; a rough estimate for the absolute size of the Eurozone underground economy would be $3 trillion. Obviously, including illegal activities (e.g., the drug trade) would increase these measures considerably. The measures of the size of the underground economy in figure 5.1 are broadly consistent with those in other recent studies, including by Rafael La Porta and Andrei Shleifer.17 They look at a variety of indicators, finding, for example, that for the upper quartile of countries by income, electricity consumption in the informal (underground) economy averages 17.6% of total electricity consumption. La Porta and Shleifer also look at such measures as self-employment, because the self-employed are more likely to underreport income.

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., Eugene F. Seskin, and Barbara M. Fraumeni. 2008. “Taking the Pulse of the Economy: Measuring GDP.” Journal of Political Economy 22 (2): 193–216. Landes, David. 1999. The Wealth and Poverty of Nations: Why Some Are So Rich and Some Are So Poor. New York: W. W. Norton and Co. La Porta, Rafael, and Andrei Shleifer. 2014. “Informality and Development.” Journal of Economic Perspectives 28 (3): 109–26. Lebow, David E. 1993. “Monetary Policy at Near Zero Interest Rates.” Federal Reserve Board, Division of Research and Statistics Working Paper 136 (July). Washington, DC. Leeper, Eric. 1991. “Equilibria under Active and Passive Monetary and Fiscal Policies.”

The Butterfly Defect: How Globalization Creates Systemic Risks, and What to Do About It by Ian Goldin, Mike Mariathasan

air freight, air traffic controllers' union, Andrei Shleifer, Asian financial crisis, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Bretton Woods, BRICs, business cycle, butterfly effect, carbon tax, clean water, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, connected car, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, digital divide, discovery of penicillin, diversification, diversified portfolio, Douglas Engelbart, Douglas Engelbart, Edward Lorenz: Chaos theory, energy security, eurozone crisis, Eyjafjallajökull, failed state, Fairchild Semiconductor, Fellow of the Royal Society, financial deregulation, financial innovation, financial intermediation, fixed income, Gini coefficient, Glass-Steagall Act, global pandemic, global supply chain, global value chain, global village, high-speed rail, income inequality, information asymmetry, Jean Tirole, John Snow's cholera map, Kenneth Rogoff, light touch regulation, Long Term Capital Management, market bubble, mass immigration, megacity, moral hazard, Occupy movement, offshore financial centre, open economy, precautionary principle, profit maximization, purchasing power parity, race to the bottom, RAND corporation, regulatory arbitrage, reshoring, risk free rate, Robert Solow, scientific management, Silicon Valley, six sigma, social contagion, social distancing, Stuxnet, supply-chain management, systems thinking, tail risk, TED Talk, The Great Moderation, too big to fail, Toyota Production System, trade liberalization, Tragedy of the Commons, transaction costs, uranium enrichment, vertical integration

A tail risk is the risk that a relatively large loss will emerge toward the end of a transaction, when relatively few loans remain in the securitization pool. 25. Markus K. Brunnermeier, 2008, “Deciphering the Liquidity and Credit Crunch, 2007–08,” NBER Working Paper 14612, National Bureau of Economic Research, Cambridge, MA, accessed 21 January 2013, http://www.nber.org/papers/w14612. 26. Nicola Gennaioli, Andrei Shleifer, and Robert W. Vishny, 2012, “Neglected Risks, Financial Innovation, and Financial Fragility,” Journal of Financial Economics 104 (3): 452–468. 27. William A. Brock, Cars H. Hommes, and Florian O. O. Wagener, 2008, “More Hedging Instruments May Destabilize Markets,” CeNDEF Working Paper 08-04, Center for Nonlinear Dynamics in Economics and Finance, University of Amsterdam, Amsterdam. 28.

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Accessed 2 February 2013. http://www.gsb.stanford.edu/sites/default/files/documents/PRTM_Globalization_In_Uncertain_Times.pdf. Genesis Forwarding News. 2010. “Guarulhos Airport Congestion Chaos.” Accessed circa 2010; article no longer available on website. http://www.genesis-forwarding.com/News/Guarulhos-Airport-Congestion-Chaos.aspx. Gennaioli, Nicola, Andrei Shleifer, and Robert W. Vishny. 2012. “Neglected Risks, Financial Innovation, and Financial Fragility.” Journal of Financial Economics 104 (3): 452–468. Georg, Co-Pierre. 2011. “The Effect of the Interbank Network Structure on Contagion and Financial Stability.” Discussion Paper Series 2: Banking and Financial Studies 12/2011.

Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema

Andrei Shleifer, barriers to entry, Berlin Wall, book value, business cycle, business logic, capital asset pricing model, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, Fairchild Semiconductor, financial engineering, fixed income, index fund, intangible asset, junk bonds, Long Term Capital Management, naked short selling, new economy, place-making, price mechanism, quantitative trading / quantitative finance, Richard Thaler, risk free rate, search costs, shareholder value, short selling, Silicon Valley, stocks for the long run, Telecommunications Act of 1996, time value of money, tulip mania, Y2K, zero-sum game

Other studies confirming and expanding the Fama-French findings are summarized and described in a pamphlet produced by Tweedy, Browne Company, L.P., 52 Vanderbilt Avenue, New York, NY 10017: "What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns." On risk as (un)related to return: Joseph Lakonishok, Andrei Shleifer, Robert Vishny, "Contrarian Investment, Extrapolation and Risk," Journal of Finance (1994). Warren E. Buffett, "The Superinvestors of Graham-and-Doddsville," can be found as an appendix in Benjamin Graham, The Intelligent Investor, 4th revised edition. Chapter Two On the various tests that have been run to compare value stocks with growth, glamour, or otherwise popular securities: Michelle Clayman, "In Search of Excellence: The Investor's Viewpoint," Financial Analysts Journal, May/June 1987.

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On cognitive biases, the starting point is the collection of papers: Daniel Kahneman, Paul Slovic, and Amos Tversky, editors, Judgment under Uncertainty (New York: Cambridge University Press, 1982). The consequences for investments form the relatively new field of behavioral finance. Books and articles to consult: Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford: Oxford University Press, 2000). Richard H. Thaler, editor, Advances in Behavioral Finance (New York: Russell Sage Foundation, 1993). David Dreman, Contrarian Investment Strategies: The Next Generation (New York: Simon & Schuster, 1998), makes use and has references to many of the articles in this field.

Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

Neoclassical theory is a theory of sharks and not a theory of rational homo economicus, and that is the principal distinction between finance and traditional economics. . . . Well-financed arbitrageurs spot these opportunities [resulting from behavioral errors], pile on, and by their actions close aberrant price differentials [emphasis added].10 An attack on Ross’s position on arbitrage has been mounted by Harvard economist Andrei Shleifer and by Robert Vishny, one of Thaler’s colleagues at Chicago, in an inf luential paper titled “The Limits to Arbitrage.” Shleifer and Vishny build their case on an argument describing the differences between the world in the pages of textbooks and the world where real investors are making decisions: Textbook arbitrage in financial markets requires no capital and entails no risk.

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“The Vulcanization of the Human Brain: A Neural Perspective on Interactions Between Cognition and Emotion,” Journal of Economic Perspectives, Vol. 19, No. 1 ( Fall), pp. 3–24. Damsma, Marvin, and Gregory Williamson, 1996. “Managing Risk in the Aggregate Portfolio: The Rewards of Portable Alpha,” in Alpha—The Positive Side of Risk: Daring to Be Dif ferent, New York: Investors Press. De Long, J. Bradford, Andrei Shleifer, Lawrence Summers, and Robert Waldmann, 1991. “The Survival of Noise Traders in Financial Markets,” Journal of Business, Vol. 64, No. 1 ( January), pp. 1–19. De Finetti, Bruno, 1940. “Il Problema dei «pieni»” [“The Problem of ‘Full-Risk Insurances’ ”], Giornale dell’Istituto Italiano degli Attuari, Vol. 11, No. 1, pp. 1–88.

How Not to Network a Nation: The Uneasy History of the Soviet Internet (Information Policy) by Benjamin Peters

Albert Einstein, American ideology, Andrei Shleifer, Anthropocene, Benoit Mandelbrot, bitcoin, Brownian motion, Charles Babbage, Claude Shannon: information theory, cloud computing, cognitive dissonance, commons-based peer production, computer age, conceptual framework, continuation of politics by other means, crony capitalism, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, disinformation, Dissolution of the Soviet Union, Donald Davies, double helix, Drosophila, Francis Fukuyama: the end of history, From Mathematics to the Technologies of Life and Death, Gabriella Coleman, hive mind, index card, informal economy, information asymmetry, invisible hand, Jacquard loom, John von Neumann, Kevin Kelly, knowledge economy, knowledge worker, Lewis Mumford, linear programming, mandelbrot fractal, Marshall McLuhan, means of production, megaproject, Menlo Park, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, Network effects, Norbert Wiener, packet switching, Pareto efficiency, pattern recognition, Paul Erdős, Peter Thiel, Philip Mirowski, power law, RAND corporation, rent-seeking, road to serfdom, Ronald Coase, scientific mainstream, scientific management, Steve Jobs, Stewart Brand, stochastic process, surveillance capitalism, systems thinking, technoutopianism, the Cathedral and the Bazaar, the strength of weak ties, The Structural Transformation of the Public Sphere, transaction costs, Turing machine, work culture , Yochai Benkler

Sistema, Power Networks and Informal Governance (New York: Cambridge University Press, 2013). 43. Byung-Yeon Kim, “Informal Economy Activities of Soviet Households: Size and Dynamics,” Journal of Comparative Economics 31 (3) ( 2003): 532–551. 44. Kim, “Informal Economy Activities of Soviet Households,” 532–535; Simon Johnson, Daniel Kaufmann, and Andrei Shleifer, “The Unofficial Economy in Transition,” Brookings Papers on Economic Activity 2 (1997): 159–221. 45. Ledeneva, Russia’s Economy of Favors, 12. 46. Zbigniew K. Brzezinski, The Soviet Block: Unity and Conflict, rev. ed. (New York: Praeger, 1960), 116, see also 115–124. 47. From Elet es Tudomany, December 24, 1952, and Rude Pravo, December 21, 1952, quoted in Brzezinski, The Soviet Block, 114. 48.

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Unpublished manuscript. John, Richard. Network Nation: Inventing American Telecommunications. Cambridge: Harvard University Press, 2010. Johnson, Daniel. White King and Red Queen: How the Cold War Was Fought on the Chessboard. Boston: Houghton Mifflin, 2008. Johnson, Simon, Daniel Kaufmann, and Andrei Shleifer. “The Unofficial Economy in Transition.” Brookings Papers on Economic Activity 2 (1997): 159–221. Johnston, John. The Allure of Machinic Life: Cybernetics, Artificial Life, and the New AI. Cambridge, MA: MIT Press, 2008. Joravsky, David. Soviet Marxism and Natural Science, 1917–1932. New York: Columbia University Press, 1971.

The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics by William R. Easterly

Andrei Shleifer, business climate, business cycle, Carmen Reinhart, central bank independence, clean water, colonial rule, correlation does not imply causation, creative destruction, endogenous growth, financial repression, foreign exchange controls, Gini coefficient, government statistician, Gunnar Myrdal, income inequality, income per capita, inflation targeting, interchangeable parts, inventory management, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, large denomination, low interest rates, manufacturing employment, Money creation, Network effects, New Urbanism, open economy, PalmPilot, Productivity paradox, purchasing power parity, rent-seeking, Robert Solow, Ronald Reagan, selection bias, Silicon Valley, Simon Kuznets, The Wealth of Nations by Adam Smith, Thomas Malthus, total factor productivity, trade liberalization, Tragedy of the Commons, urban sprawl, Watson beat the top human players on Jeopardy!, Yogi Berra, Yom Kippur War

.: Macro International June. Mulligan, Casey B., and Xavier Sala-i-Martin. 1993. “Transitional Dynamics in TwoSector Models of Endogenous Growth.” Quarterly Journal of Economics 108 (August): 739-773. Murphy, Kevin M,, Andrei Shleifer, and Robert W. Vishny. 1989. “Industrialization and the Big Push.” Journal of Political Economy 97, no. 5 (October): 1003-1026. Murphy, Kevin M,, Andrei Shleifer, and Robert W. Vishny. 1991. ”The Allocation of Talent: Implications for Growth.” Quarterly Journal of Economics 106, no. 2 (May): 503530. Nafziger, E. Wayne. 1993. The Debt Crisis in Africa. Baltimore: Johns Hopkins University Press.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"there is no alternative" (TINA), Adam Curtis, Alan Greenspan, Alvin Roth, An Inconvenient Truth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , bread and circuses, Bretton Woods, Brownian motion, business cycle, capital controls, carbon credits, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, democratizing finance, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, Flash crash, full employment, George Akerlof, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Phillips curve, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, public intellectual, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, search costs, Silicon Valley, South Sea Bubble, Steven Levy, subprime mortgage crisis, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, tontine, too big to fail, transaction costs, Tyler Cowen, vertical integration, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

Partly it was due to some political appointees in the Obama administration such as Cass Sunstein who claimed (falsely, as it turned out) that behavioral economics could be used to “nudge” people into behaving more like neoclassical agents.52 Partly, it was the fault of a few bona fide behavioral finance economists (like Andrei Shleifer), who quickly whipped up a couple of toy models after the crisis, purportedly demonstrating that all agents are beset with a peculiar character flaw that causes them to ignore unlikely disastrous events, causing them to whipsaw around the true fundamental determinants of asset prices as defined by the orthodox rational-expectations model, in the face of securitization and tranching.53 But it also emanated from the vast scrum of journalists, primed to believe that once economists would just abjure “rational choice theories,” then all would become revealed.

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The massive number of papers published on the EMH merely testified to the Protean character of the idol of “market efficiency,” which grew to the status of obsession within the American profession.64 One recent instance of EMH denial that has attracted the endorsement of reformers such as Adair Turner in Britain and Ezra Klein in the United States is the already-mentioned work of the Harvard economist Andrei Shleifer.65 Shleifer is a neoliberal who passes as a left-liberal economist in America, in the Lawrence Summers mold. Shleifer’s model initially “seems” to call into question the validity of certain classes of dubious artificial derivatives by suggesting someone is being misled by the market; but as usual, the devil is in the details.

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., NBER Macroeconomics Annual 24 (2009): 1–64. Geanakoplos, John. “Managing the Leverage Cycle,” in Dopo la Crisi, (Milan: Giuffre Editione), 2010 http://dido.econ.yale.edu/P/cp/p13a/p1306.pdf. Geanakoplos, John, and Ana Fostel. “Leverage Cycles and the Anxious Economy,” American Economic Review 98 (2008): 1211–44. Gennaioli, Nicola, Andrei Shleifer, and Robert Vishny. “Neglected Risks, Financial Innovation and Financial Fragility,” NBER Working Paper 16068, 2010. Gerardi, Kristopher, Christopher Foote, and Paul Willen. “Reasonable People Did Disagree,” Boston Fed working paper (2010), at www.bos.frb.org/economic/ppdp/2010/ppdp1005.htm.

An Economic History of the Twentieth Century by J. Bradford Delong

affirmative action, Alan Greenspan, Andrei Shleifer, ASML, asset-backed security, Ayatollah Khomeini, banking crisis, Bear Stearns, Bretton Woods, British Empire, business cycle, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, collapse of Lehman Brothers, collective bargaining, colonial rule, coronavirus, cotton gin, COVID-19, creative destruction, crowdsourcing, cryptocurrency, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, en.wikipedia.org, ending welfare as we know it, endogenous growth, Fairchild Semiconductor, fake news, financial deregulation, financial engineering, financial repression, flying shuttle, Ford Model T, Ford paid five dollars a day, Francis Fukuyama: the end of history, full employment, general purpose technology, George Gilder, German hyperinflation, global value chain, Great Leap Forward, Gunnar Myrdal, Haber-Bosch Process, Hans Rosling, hedonic treadmill, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, housing crisis, Hyman Minsky, income inequality, income per capita, industrial research laboratory, interchangeable parts, Internet Archive, invention of agriculture, invention of the steam engine, It's morning again in America, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, labor-force participation, land reform, late capitalism, Les Trente Glorieuses, liberal capitalism, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, means of production, megacity, Menlo Park, Mikhail Gorbachev, mortgage debt, mutually assured destruction, Neal Stephenson, occupational segregation, oil shock, open borders, open economy, Paul Samuelson, Pearl River Delta, Phillips curve, plutocrats, price stability, Productivity paradox, profit maximization, public intellectual, quantitative easing, Ralph Waldo Emerson, restrictive zoning, rising living standards, road to serfdom, Robert Gordon, Robert Solow, rolodex, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Silicon Valley, Simon Kuznets, social intelligence, Stanislav Petrov, strikebreaker, structural adjustment programs, Suez canal 1869, surveillance capitalism, The Bell Curve by Richard Herrnstein and Charles Murray, The Chicago School, The Great Moderation, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, transatlantic slave trade, transcontinental railway, TSMC, union organizing, vertical integration, W. E. B. Du Bois, Wayback Machine, Yom Kippur War

My development editor, Thomas Lebien, and my editor at Basic, Brian Distelberg, have been essential: much of this book might be better framed as a Platonic dialogue with them, and it would not exist without them. My intellectual debts are so great, and there are very many who deserve to be thanked (without implicating any of them in the many, many mistakes I am sure I have committed in this book). But let me cheat and thank only ten more. First of all, let me thank Andrei Shleifer and Larry Summers: whenever I have been able to think thoughts worth recording and disseminating, more often than not my train of thought has begun with “What would Larry say here?” or “What would Andrei think about this?” Then there is the huge amount of my intellectual formation that springs from the Committee on Degrees in Social Studies, most importantly Jeff Weintraub and Shannon Stimson.

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Filene, “The New Capitalism,” Annals of the American Academy of Political and Social Science 149, no. 1 (May 1930): 3–11. 39. “Fisher Sees Stocks Permanently High,” New York Times, October 16, 1929, https://timesmachine.nytimes.com/timesmachine/1929/10/16/96000134.html. 40. J. Bradford DeLong and Andrei Shleifer, “Closed-End Fund Discounts: A Yardstick of Small-Investor Sentiment,” Journal of Portfolio Management 18, no. 2 (Winter 1992): 46–53. 41. Eichengreen, Golden Fetters, 222–256. 42. Douglas Irwin, “Who Anticipated the Great Depression? Gustav Cassel Versus Keynes and Hayek on the Interwar Gold Standard,” Journal of Money, Credit, and Banking 46, no. 1 (February 2014): 199–227, https://cpb-us-e1.wpmucdn.com/sites.dartmouth.edu/dist/c/1993/files/2021/01/jmcb.12102.pdf. 43.

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Stanley Engerman and Kenneth Sokoloff, “Institutions, Factor Endowments, and Paths of Development in the New World,” Journal of Economic Perspectives 14, no. 3 (Summer 2020): 217–232, available at American Economic Association, www.aeaweb.org/articles?id=10.1257/jep.14.3.217; Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “The Economic Consequences of Legal Origins,” Journal of Economic Literature 46, no. 2 (June 2008): 285–332. 5. Harold Macmillan, “Winds of Change,” BBC, February 3, 1960, www.bbc.co.uk/archive/tour-of-south-africa—rt-hon-macmillan/zv6gt39. 6. Ashutosh Varshney, “The Wonder of Indian Democracy,” East Asia Forum Quarterly, February 29, 2012, www.eastasiaforum.org/2012/02/29/the-wonder-of-indian-democracy. 7.

Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann

Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, Cass Sunstein, classic study, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, Cornelius Vanderbilt, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, equity risk premium, financial engineering, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, land bank, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, means of production, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, public intellectual, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, tontine, too big to fail, trade liberalization, trade route, transatlantic slave trade, tulip mania, wage slave

If the project is a risky one—and most innovations are—a delay of ten years could cause the value to drop by 80%. Perhaps the fall in share prices in the early 1930s reflected the realization that those marvelous patents, so valuable when people had money in their pockets, would take a very, very long time to yield future dividends. A contrary view—proposed by Bradford DeLong and Andrei Shleifer, both deep thinkers about markets, is that the euphoria of investors about the market pushed valuation way beyond its fundamental economic worth.17 Delong and Shleifer tested this idea by gathering prices of investment funds trading in the 1920s and looking at the prices of the stocks they held.

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Part III, Committee for the Holders of Real Estate Bonds. Washington, DC: US Government Printing Office, p. 67 and ff. 16. See Nicholas, Tom. 2008. “Does innovation cause stock market runups? Evidence from the great crash.” American Economic Review 98(4): 1370–1396. 17. De Long, J. Bradford, and Andrei Shleifer. 1990. The Bubble of 1929: Evidence from Closed-End Funds. No. w3523. Cambridge, MA: National Bureau of Economic Research. 18. The following paper was read before a joint meeting of the Econometric Society and the American Statistical Association, Cincinnati, Ohio, December 31, 1932. It was reprinted in Cowles, Alfred. 1933.

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The South-Sea Scheme Examin’d: And the Reasonableness Thereof Demonstrated. By a Hearty Well-Wisher to Publick Credit, third edition. London: J. Roberts. Delisle, M. Leopold. 1888. “Memoires sur les Operations Financieres des Templiers.” Mémoires de l’Institute National de France. Academie des Inscriptions Belles-Lettres, Paris 33: 11. De Long, J. Bradford, and Andrei Shleifer. 1990. The Bubble of 1929: Evidence from Closed-End Funds. No. w3523. Cambridge, MA: National Bureau of Economic Research. De Moivre, Abraham. 1756. The Doctrine of Chances: Or, a Method of Calculating the Probabilities of Events in a Play, third edition. London: Millar. Reprinted in 1967, New York: Chelsea Publishing.

A Game as Old as Empire: The Secret World of Economic Hit Men and the Web of Global Corruption by Steven Hiatt; John Perkins

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "World Economic Forum" Davos, accelerated depreciation, addicted to oil, airline deregulation, Andrei Shleifer, Asian financial crisis, Berlin Wall, big-box store, Bob Geldof, book value, Bretton Woods, British Empire, capital controls, centre right, clean water, colonial rule, corporate governance, corporate personhood, deglobalization, deindustrialization, disinformation, Doha Development Round, energy security, European colonialism, export processing zone, financial deregulation, financial independence, full employment, global village, high net worth, land bank, land reform, large denomination, liberal capitalism, Long Term Capital Management, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, military-industrial complex, moral hazard, Naomi Klein, new economy, North Sea oil, offshore financial centre, oil shock, Ponzi scheme, race to the bottom, reserve currency, Ronald Reagan, Scramble for Africa, Seymour Hersh, statistical model, structural adjustment programs, Suez crisis 1956, Tax Reform Act of 1986, too big to fail, trade liberalization, transatlantic slave trade, transfer pricing, union organizing, Washington Consensus, working-age population, Yom Kippur War

There is a strong case for removing India and China from these numbers because they account for a disproportionate share of reserves, and, in China’s case, capital flight estimates are distorted by a substantial amount of “round-tripping” through Hong Kong (capital flight to Hong Kong that returns to China as “foreign” investment capital). However, even after removing those two countries, the flight wealth from developing countries turns out to be at least $1 trillion greater than their net debt. 28. See, for example, Andrei Shleifer and Daniel Wolfenzon, “Investor Protection and Equity Markets,” Journal of Financial Economics 66, no. 1 (2002), pp. 3-27; and Rafael LaPorta et al., “Legal Determinants of External Finance,” Journal of Finance 52 (1997), pp. 1131-50. Interestingly, in September 2000, Shleifer, a tenured Harvard economics professor and program director at Harvard’s Institute for International Development in Russia, was one of several key defendants named in a $100 million lawsuit filed by the U.S. government.

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The suit alleged that, while managing a USAID-funded economic reform effort in Russia during the 1990s, Shleifer had engaged in the “unauthorized use of inside information to commit securities fraud, use of public money for private gain, tax evasion and submission of phony bills … a garden-variety, free-market scam.” See U.S. v. President and Fellows of Harvard College, Andrei Shleifer, Jonathan Hay, Nancy Zimmerman, and Elizabeth Herbert (U.S. District Court of Boston, Civil Action 00119977, September 26, 2000). The suit was settled in July 2005 with a $26.5 million payment by Harvard and a $2 million payment by Professor Shleifer. 29. See Henry, Pirate Bankers. 30. For the world’s forty-nine poorest countries, by UN designation, real per capita incomes, adjusted for purchasing parity (PPP) differentials, grew an average of just 0.7 percent yearly from 1980 to 2005, and for the rest of low- and middle-income countries—excluding China and India—incomes grew an average of just 0.8 percent yearly.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Black-Scholes formula, book value, Brownian motion, business cycle, buy and hold, buy low sell high, buy the rumour, sell the news, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, currency risk, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, global macro, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, junk bonds, late capitalism, law of one price, Long Term Capital Management, low interest rates, managed futures, margin call, market clearing, market design, market friction, Market Wizards by Jack D. Schwager, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, Phillips curve, price discovery process, price stability, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, short squeeze, SoftBank, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, tail risk, technology bubble, time dilation, time value of money, total factor productivity, transaction costs, two and twenty, value at risk, Vanguard fund, yield curve, zero-coupon bond

Thaler (1985), “Does the Stock Market Overreact?” The Journal of Finance 40(3), 793–805. De Long, J. B., A. Shleifer, L. H. Summers, and R. J. Waldmann (1990), “Positive Feedback Investment Strategies and Destabilizing Rational Speculation,” The Journal of Finance 45, 379–395. De Long, J. B., Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1993), “Noise Trader Risk in Financial Markets,” Journal of Political Economy 98, 703–738. de Roon, F., T. E. Nijman, and C. Veld (2000), “Hedging Pressure Effects in Futures Markets,” Journal of Finance 55, 1437–1456. Dechow, Patricia M., Richard G.

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Naik, and Melvyn Teo (2007), “Do Hedge Funds Deliver Alpha? A Bayesian and Bootstrap Analysis,” Journal of Financial Economics 84, 229–264. Krishnamurthy, Arvind, and Annette Vissing-Jorgensen (2012), “The Aggregate Demand for Treasury Debt,” Journal of Political Economy 120, 233–267. Lakonishok, Josef, Andrei Shleifer, and Robert W. Vishny (1994), “Contrarian Investment, Extrapolation, and Risk,” The Journal of Finance 49(5), 1541–1578. Lamont, Owen (2012), “Go Down Fighting: Short Sellers vs. Firms,” Review of Asset Pricing Studies 2, 1–30. Lamont, Owen, and Richard H. Thaler (2003), “Can the Stock Market Add and Subtract?

How Markets Fail: The Logic of Economic Calamities by John Cassidy

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

According to this theory, which also reflects the influence of Keynes, investing is essentially a game played between sophisticates and boobs. The sophisticates are assumed to be fully rational, with access to reams of information and an ability to sift significant news from irrelevant ephemera, which statisticians refer to as noise. The boobs are naive and mentally limited. In the description of Andrei Shleifer, a Harvard professor who played a leading role in developing the noise trader model, they “follow the advice of financial gurus, fail to diversify, actively trade stocks and churn their portfolios, sell winning stocks and hold on to losing stocks, thereby increasing their tax liabilities, buy and sell actively and expensively managed mutual funds, follow stock price patterns and other popular models.”

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America’s Portfolio Managers Grow More Bullish on Stocks and Interest Rates,” Barron’s, May 3, 1999, 31–38. 181 Pension fund investment in the Internet bubble: Eli Ofek and Matthew Richardson, “DotCom Mania: The Rise and Fall of Internet Stock Prices,” Journal of Finance 57, no. 3 (June 2003): 1122. 181 “From an efficient markets perspective . . .”: Markus K. Brunnermeier and Stefan Nagel, “Hedge Funds and the Technology Bubble,” Journal of Finance 59, no. 5 (October 2004): 2013–40. 182 “follow the advice of financial . . .”: Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (New York: Oxford University Press, 2000), 10. 183 “[R]ational arbitrage can . . .”: Ibid., 174. 184 “This risk comes from . . .”: Ibid., 14–15. 184 “We were too early in calling . . .”: Mitchell Pacelle, “Soros to Appoint a CEO After Firm’s Chaotic Year,” Wall Street Journal, August 10, 1999, C1. 185 Fama update on the efficient market hypothesis: Eugene G.

Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert J. Shiller

agricultural Revolution, Alan Greenspan, Albert Einstein, algorithmic trading, Andrei Shleifer, autism spectrum disorder, autonomous vehicles, bank run, banking crisis, basic income, behavioural economics, bitcoin, blockchain, business cycle, butterfly effect, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, central bank independence, collective bargaining, computerized trading, corporate raider, correlation does not imply causation, cryptocurrency, Daniel Kahneman / Amos Tversky, debt deflation, digital divide, disintermediation, Donald Trump, driverless car, Edmond Halley, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fake news, financial engineering, Ford Model T, full employment, George Akerlof, germ theory of disease, German hyperinflation, Great Leap Forward, Gunnar Myrdal, Gödel, Escher, Bach, Hacker Ethic, implied volatility, income inequality, inflation targeting, initial coin offering, invention of radio, invention of the telegraph, Jean Tirole, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, litecoin, low interest rates, machine translation, market bubble, Modern Monetary Theory, money market fund, moral hazard, Northern Rock, nudge unit, Own Your Own Home, Paul Samuelson, Philip Mirowski, plutocrats, Ponzi scheme, public intellectual, publish or perish, random walk, Richard Thaler, Robert Shiller, Ronald Reagan, Rubik’s Cube, Satoshi Nakamoto, secular stagnation, shareholder value, Silicon Valley, speech recognition, Steve Jobs, Steven Pinker, stochastic process, stocks for the long run, superstar cities, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, traveling salesman, trickle-down economics, tulip mania, universal basic income, Watson beat the top human players on Jeopardy!, We are the 99%, yellow journalism, yield curve, Yom Kippur War

“The Price and Quantity of Residential Land in the United States.” Journal of Monetary Economics 54(8):2595–620. Davis, Shelby Cullom. 1940. America Faces the Forties. Philadelphia: Dorrance and Company. Dawkins, Richard. 1976. The Selfish Gene. Oxford: Oxford University Press. De Long, J. Bradford, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. 1990. “Noise Trader Risk in Financial Markets.” Journal of Political Economy 98(4):703–38. Desmond, Matthew. 2017. Evicted: Poverty and Profit in the American City. New York: Broadway Books. Diamond, Douglas B., Jr. 1980. “Taxes, Inflation, Speculation and the Cost of Homeownership.”

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“Neuroanatomy of ‘Hearing Voices’: A Frontotemporal Brain Structural Abnormality Associated with Auditory Hallucinations in Schizophrenia.” Cerebral Cortex 14(1):91–96. Geanakoplos, John. 2010. “The Leverage Cycle.” In Daron Acemoglu et al., eds., NBER Macroeconomics Annual 2009, vol. 24. Chicago: University of Chicago Press. Gennaioli, Nicola, and Andrei Shleifer. 2018. A Crisis of Beliefs: Investor Psychology and Financial Fragility. Princeton, NJ: Princeton University Press. Gentzkow, Matthew, Jesse M. Shapiro, and Matt Taddy. 2016. “Measuring Polarization in High-Dimensional Data: Method and Application to Congressional Speech.” Unpublished paper, Stanford University.

Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State by Paul Tucker

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, Andrei Shleifer, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, conceptual framework, corporate governance, diversified portfolio, electricity market, Fall of the Berlin Wall, financial innovation, financial intermediation, financial repression, first-past-the-post, floating exchange rates, forensic accounting, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, George Akerlof, Greenspan put, incomplete markets, inflation targeting, information asymmetry, invisible hand, iterative process, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, liberal capitalism, light touch regulation, Long Term Capital Management, low interest rates, means of production, Money creation, money market fund, Mont Pelerin Society, moral hazard, Northern Rock, operational security, Pareto efficiency, Paul Samuelson, price mechanism, price stability, principal–agent problem, profit maximization, public intellectual, quantitative easing, regulatory arbitrage, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, road to serfdom, Robert Bork, Ronald Coase, seigniorage, short selling, Social Responsibility of Business Is to Increase Its Profits, stochastic process, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the payments system, too big to fail, transaction costs, Vilfredo Pareto, Washington Consensus, yield curve, zero-coupon bond, zero-sum game

To this chapter’s two-dimensional matrix of the purposes and functional modes of the administrative state we must add a third dimension, covering its structure. That, and in particular the varying degrees to which state agencies are insulated from politics, is the subject of the next chapter. 1 Friedman, “Social Responsibility.” 2 Majone, Regulating Europe, chapter 13, p. 296. 3 Thanks to Andrei Shleifer for urging me to stress why the path of twentieth-century welfare economics matters to our inquiry into IAs. 4 For an exchange on the role of the state between economists with a very different cast of mind, see Buchanan and Musgrave, Public Finance. 5 Musgrave, Theory of Public Finance. Musgrave omitted physical security, presumably because he was interested in economic policy. 6 Following London (later Oxford) philosopher Freddie Ayer’s version of the Viennese fashion that what we cannot verify is literally meaningless, London School of Economics economist Lionel Robbins forcefully latched onto the view that ethics is just noise and, at the very least, completely separable from the technical science of economics.

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Among current or former staff in Congress: James Ahn and Jim Segal. Among international institutions: Ceyla Pazarbasioglu, Marc Quintyn, and Jose Vinals. A few people are omitted from those lists because they have provided a special degree of intellectual and personal support. Among academics, I must single out Alberto Alesina, Philip Pettit, Paul Sagar, Andrei Shleifer, and Kevin Stack. I could hardly be more grateful to them. The enthusiasm of Philip for my project from its early stages made a massive difference. In places, the book is an exercise in Alesina meets Pettit and Waldron under the umbrella of David Beetham (whom I do not know at all) and the late Bernard Williams (whom I discussed with Paul and Kevin).

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Delegation in the Regulatory State: Independent Regulatory Agencies in Western Europe. Cheltenham: Edward Elgar, 2008. Ginsburg, Douglas H., and Steven Menashi. “Our Illiberal Administrative Law.” New York University Journal of Law & Liberty 10, no. 2 (2016): 475–523. Glaeser, Edward L., and Andrei Shleifer. “The Rise of the Regulatory State.” NBER Working Paper, no. 8650, December 2001. Goldmann, Matthias. “Adjudicating Economics? Central Bank Independence and the Appropriate Standard of Judicial Review.” German Law Journal 15, no. 2 (2014): 266–80. Goldsworthy, Jeffrey. Parliamentary Sovereignty: Contemporary Debates.

American Secession: The Looming Threat of a National Breakup by F. H. Buckley

Affordable Care Act / Obamacare, Andrei Shleifer, belling the cat, Bernie Sanders, British Empire, Cass Sunstein, colonial rule, crony capitalism, desegregation, diversified portfolio, Donald Trump, Francis Fukuyama: the end of history, guns versus butter model, hindsight bias, illegal immigration, immigration reform, income inequality, low interest rates, Michael Milken, military-industrial complex, old-boy network, Paris climate accords, race to the bottom, Republic of Letters, reserve currency, Ronald Coase, Stephen Fry, Suez crisis 1956, transaction costs, Washington Consensus, wealth creators

Veenendaal and Jack Corbett, “Why Small States Offer Important Answers to Large Questions,” Comparative Political Studies, vol. 48, no. 4 (2015): 527–49. 7 Aristotle, Politics VII § 4 (“if the citizens of a state are to judge and to distribute offices according to merit, then they must know each other’s characters”). 8 William Easterly and Ross Levine, “Africa’s Growth Tragedy: Policies and Ethnic Divisions,” Quarterly Journal of Economics, vol. 112, no. 4 (November 1997): 1203–50; Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, “The Quality of Government,” Journal of Law and Economics, vol. 15, no. 1 (April 1999): 222–79. 9 Farrand II.644 (September 17). 10 Jean-Jacques Rousseau, Social Contract III.2, in Rousseau: The Social Contract and other later political writings, ed. Victor Gourevitch (New York: Cambridge University Press, 1997).

Civilization: The West and the Rest by Niall Ferguson

Admiral Zheng, agricultural Revolution, Albert Einstein, Andrei Shleifer, Atahualpa, Ayatollah Khomeini, Berlin Wall, BRICs, British Empire, business cycle, clean water, collective bargaining, colonial rule, conceptual framework, Copley Medal, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, Dean Kamen, delayed gratification, Deng Xiaoping, discovery of the americas, Dissolution of the Soviet Union, Easter island, European colonialism, Fall of the Berlin Wall, financial engineering, Francisco Pizarro, full employment, Great Leap Forward, Gregor Mendel, guns versus butter model, Hans Lippershey, haute couture, Hernando de Soto, income inequality, invention of movable type, invisible hand, Isaac Newton, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, joint-stock company, Joseph Schumpeter, Kickstarter, Kitchen Debate, land reform, land tenure, liberal capitalism, Louis Pasteur, Mahatma Gandhi, market bubble, Martin Wolf, mass immigration, means of production, megacity, Mikhail Gorbachev, new economy, Pearl River Delta, Pierre-Simon Laplace, power law, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, purchasing power parity, quantitative easing, rent-seeking, reserve currency, retail therapy, road to serfdom, Ronald Reagan, savings glut, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special economic zone, spice trade, spinning jenny, Steve Jobs, Steven Pinker, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Great Moderation, the market place, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, total factor productivity, trade route, transaction costs, transatlantic slave trade, undersea cable, upwardly mobile, uranium enrichment, wage slave, Washington Consensus, women in the workforce, work culture , World Values Survey

., Cotton Mills and Workers in Modern Japan (Osaka, 1919) Keene, Donald, Emperor of Japan: Meiji and his World, 1852–1912 (New York, 2005) Kurlansky, Mark, 1968: The Year that Rocked the World (New York, 2005) Lamoreaux, Naomi, ‘Scylla or Charybdis? Some Historical Reflections on the Two Basic Problems of Corporate Governance’, unpublished paper (2009) La Porta, Rafael, Florencio Lopez-de-Silanes and Andrei Shleifer, ‘The Economic Consequences of Legal Origins’, Journal of Economic Literature, 46, 2 (2008), 285–332 La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny, ‘Investor Protection and Corporate Governance’, Journal of Financial Economics, 58, 1 (2000), 1–25 ———, ‘Law and Finance’, Journal of Political Economy, 106, 6 (1998), 1113–55 Leggewie, Claus, ‘1968: A Defining Year in World Politics: A Return from Cultural Nostalgia to Political Analysis’, Goethe Institute Online: http://www.goethe.de/ges/pok/dos/dos/wdp/en3045262.htm Leunig, T., ‘A British Industrial Success: Productivity in the Lancashire and New England Cotton Spinning Industries a Century Ago’, Economic History Review 56, 1 (2003), 90–117 McKendrick, Neil, John Brewer and J.

The Moral Animal: Evolutionary Psychology and Everyday Life by Robert Wright

agricultural Revolution, Andrei Shleifer, Apollo 13, Asian financial crisis, British Empire, centre right, cognitive dissonance, cotton gin, double entry bookkeeping, double helix, Easter island, fault tolerance, Francis Fukuyama: the end of history, Garrett Hardin, George Gilder, global village, Great Leap Forward, invention of gunpowder, invention of movable type, invention of the telegraph, invention of writing, invisible hand, John Nash: game theory, John von Neumann, Marshall McLuhan, Multics, Norbert Wiener, planetary scale, planned obsolescence, pre–internet, profit motive, Ralph Waldo Emerson, random walk, Richard Thaler, rising living standards, Robert Solow, Silicon Valley, social intelligence, social web, Steven Pinker, talking drums, technological determinism, the medium is the message, The Wealth of Nations by Adam Smith, trade route, Tragedy of the Commons, your tax dollars at work, zero-sum game

.† The economic logic of freedom is sufficiently subtle to have eluded a number of European rulers in the early modern age. Indeed, on balance, in the centuries after the printing press was invented, European government grew more despotic. But the trend was doomed. The economists J. Bradford De Long and Andrei Shleifer have shown that, as a rule, the more despotic the governments, and the tighter their reins on the press, the less prosperous their polities were. Even during absolutist Spain’s so-called Golden Age, Spanish cities saw declining wealth and population. Kant, writing in the late eighteenth century, observed, “If the citizen is deterred from seeking his personal welfare in any way he chooses which is consistent with the freedom of others, the vitality of business in general and hence also the strength of the whole are held in check.

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Davis, Morton D. (1989) “Game Theory,” in Encyclopaedia Brittanica, 15th ed., vol. 19, pp. 643–49. Dawkins, Richard (1976) The Selfish Gene. Oxford University Press. ——— (1986) The Blind Watchmaker. W. W. Norton. ——— (1997) “Human Chauvinism.” Evolution 51:1015–20. De Long, J. Bradford, and Andrei Shleifer (1993) “Princes and Merchants: European City Growth Before the Industrial Revolution.” Journal of Law and Economics 36:671–702. Dennett, Daniel (1991) Consciousness Explained. Little, Brown. ——— (1995) Darwin’s Dangerous Idea. Simon and Schuster. ——— (1997) “Appraising Grace.” The Sciences, January/February, pp. 39–44.

The Third Pillar: How Markets and the State Leave the Community Behind by Raghuram Rajan

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, air traffic controllers' union, airline deregulation, Albert Einstein, Andrei Shleifer, banking crisis, barriers to entry, basic income, battle of ideas, Bernie Sanders, blockchain, borderless world, Bretton Woods, British Empire, Build a better mousetrap, business cycle, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carl Icahn, central bank independence, computer vision, conceptual framework, corporate governance, corporate raider, corporate social responsibility, creative destruction, crony capitalism, crowdsourcing, cryptocurrency, currency manipulation / currency intervention, data acquisition, David Brooks, Deng Xiaoping, desegregation, deskilling, disinformation, disruptive innovation, Donald Trump, driverless car, Edward Glaeser, facts on the ground, financial innovation, financial repression, full employment, future of work, Glass-Steagall Act, global supply chain, Great Leap Forward, high net worth, household responsibility system, housing crisis, Ida Tarbell, illegal immigration, income inequality, industrial cluster, intangible asset, invention of the steam engine, invisible hand, Jaron Lanier, job automation, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, labor-force participation, Les Trente Glorieuses, low interest rates, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, means of production, Money creation, moral hazard, Network effects, new economy, Nicholas Carr, obamacare, opioid epidemic / opioid crisis, Productivity paradox, profit maximization, race to the bottom, Richard Thaler, Robert Bork, Robert Gordon, Ronald Reagan, Sam Peltzman, shareholder value, Silicon Valley, social distancing, Social Responsibility of Business Is to Increase Its Profits, SoftBank, South China Sea, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, superstar cities, The Future of Employment, The Wealth of Nations by Adam Smith, trade liberalization, trade route, transaction costs, transfer pricing, Travis Kalanick, Tyler Cowen, Tyler Cowen: Great Stagnation, universal basic income, Upton Sinclair, Walter Mischel, War on Poverty, women in the workforce, working-age population, World Values Survey, Yom Kippur War, zero-sum game

When a corporate raider takes over a company where most employees have already made such investments, repudiates these implicit contracts, eliminates jobs and cuts wages, the raider benefits, as do shareholders. Workers take a large hit, though, and they, as well as future employees in the industry, may forever lose trust in management. Harvard economists Andrei Shleifer and Larry Summers emphasized this point in the context of airline takeovers in the 1980s, after the industry was deregulated. When corporate raider Carl Icahn took over Trans World Airlines (TWA) in 1985, they argue that much of the value he squeezed out for shareholders came from abrogating wage agreements and renegotiating worker wages down.42 To the extent that workers were overpaid because of lax prior management and strong union bargaining, this was beneficial for shareholders, but unless lower costs led to lower ticket prices and more travel, this was a wash for society since no additional value was created.

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Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” The New York Times Magazine, September 13, 1970. 41. Michael Jensen and Kevin J. Murphy, “Performance Pay and Top-Management Incentives,” Journal of Political Economy 98, no. 2 (April 1990): 225–64. 42. Andrei Shleifer and Lawrence H. Summers, “Breach of Trust in Hostile Takeovers,” in Corporate Takeovers: Causes and Consequences, ed. Alan J. Auerbach (Chicago: University of Chicago Press, 1988), 33–68; Luigi Zingales, “In Search of New Foundations,” The Journal of Finance 55, no. 4 (August 2000): 1623–53. 43.

The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

affirmative action, Affordable Care Act / Obamacare, airline deregulation, Alan Greenspan, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Bear Stearns, behavioural economics, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, electricity market, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, Great Leap Forward, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Bogle, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low interest rates, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, Paul Volcker talking about ATMs, payday loans, Phillips curve, price stability, profit maximization, profit motive, public intellectual, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, search costs, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, stock buybacks, subprime mortgage crisis, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, Tragedy of the Commons, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

Stiglitz, “Credit Markets and the Control of Capital,” Journal of Money, Banking, and Credit 17, no. 2 (1985): 133–52. There is a large subsequent literature on these topics. See, e.g., Aaron S. Edlin and Joseph E. Stiglitz, “Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies,” American Economic Review 85, no. 5 (December 1995): 1301–12; and Andrei Shleifer and Robert W. Vishny, “A Survey of Corporate Governance,” Journal of Finance 52, no. 2 (June 1997): 737–83. 39. John Bogle, the founder of Vanguard Group, an investment management company that manages approximately $1.6 trillion in funds, in his comments on Bebchuk and Fried, Pay without Performance.

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Not surprisingly an army of lawyers is ready to come to the defense of the legal profession and to challenge these findings. See George L. Priest, “Lawyers, Liability, and Law Reform: Effects on American Economic Growth and Trade Competitiveness” (1993), Faculty Scholarship Series, available at 624.http://digitalcommons.law.yale.edu/fss_papers/624. 36. See Andrei Shleifer and Robert W. Vishny, The Grabbing Hand: Government Pathologies and Their Cures (Cambridge: Harvard University Press, 1998). 37. The theory is that fear of punishment after the fact will provide incentives for firms to behave well. But firms well armed with lawyers know that they often will escape punishment.

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

90 percent rule, airline deregulation, Alan Greenspan, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, Dr. Strangelove, ending welfare as we know it, financial deregulation, financial engineering, financial innovation, fixed income, flag carrier, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, It's morning again in America, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Les Trente Glorieuses, long and variable lags, Long Term Capital Management, low cost airline, low interest rates, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Paul Samuelson, Philip Mirowski, Phillips curve, plutocrats, precautionary principle, price stability, profit motive, public intellectual, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Silicon Valley, Simon Kuznets, starchitect, Steve Bannon, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus, We are all Keynesians now

Summers, a Harvard economist who served as a senior official in the Clinton and Obama administrations, wrote in 2006 that Friedman had been a “devil figure” in his youth, but he had come to view Friedman with great admiration. “He has had more influence on economic policy as it is practiced around the world today than any other modern figure,” Summers wrote.9 A Harvard colleague, Andrei Shleifer, wrote in 2009 that the period between 1980 and 2005 had been “the Age of Milton Friedman.”10 Milton Friedman’s parents came from the same small Austro-Hungarian city, Beregszász, but they met in Brooklyn, where Milton was born on July 31, 1912. He grew up in Rahway, New Jersey, where the family owned small businesses including, at various times, a clothing factory, a dry-goods store, and an ice cream parlor.

…

Well, Solow continued, everything reminded him of sex, but he didn’t put it in every paper. Robert M. Solow, “Review of A Monetary History,” in Modern Economic Classics — Evaluations Through Time, ed. Bernard S. Katz and Ronald E. Robbins (New York: Garland, 1988), 339–46. 9. Lawrence H. Summers, “The Great Liberator,” New York Times, November 19, 2006. 10. Andrei Shleifer, “The Age of Milton Friedman,” Journal of Economic Literature 47, no. 1 (2009): 123–35. 11. Friedman and Friedman, Two Lucky People, 29. 12. “Becoming an economist seemed more relevant to the burning issues of the day than becoming an applied mathematician or an actuary”: Milton Friedman, “Milton Friedman,” in Lives of the Laureates, ed.

Economic Gangsters: Corruption, Violence, and the Poverty of Nations by Raymond Fisman, Edward Miguel

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, barriers to entry, behavioural economics, blood diamond, clean water, colonial rule, congestion charging, crossover SUV, Donald Davies, European colonialism, failed state, feminist movement, George Akerlof, Great Leap Forward, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, mass immigration, megacity, oil rush, prediction markets, random walk, Scramble for Africa, selection bias, Silicon Valley, South China Sea, unemployed young men

Perhaps not surprisingly, when change did come, it was brought about by popular uprising, violent protest, and rioting in the streets that ultimately forced President Suharto to step down. 10. “Politics, legal systems and corruption in Indonesia: A historical overview.” INSEAD teaching note, 2002. 11. “Bribes, Extortion a Way of Life for Many in Sicily,” Associated Press, August 15, 1992. 12. Economists Andrei Shleifer and Robert Vishny were the first to note the benefits of centralized corruption in the aptly titled article, “Corruption,” Quarterly Journal of Economics, 1993. 13. See Mara Faccio, “Politically Connected Firms,” American Economic Review, 96(1), March 2006, pp. 369–86. 14. See Don Wolfernsberger, “Punishing Disorderly Behavior in Congress: The First Century,” mimeo, the Woodrow Wilson Center, 2006. 15.

Infotopia: How Many Minds Produce Knowledge by Cass R. Sunstein

affirmative action, Andrei Shleifer, availability heuristic, behavioural economics, Build a better mousetrap, c2.com, Cass Sunstein, cognitive bias, cuban missile crisis, Daniel Kahneman / Amos Tversky, Edward Glaeser, en.wikipedia.org, feminist movement, framing effect, Free Software Foundation, hindsight bias, information asymmetry, Isaac Newton, Jean Tirole, jimmy wales, market bubble, market design, minimum wage unemployment, prediction markets, profit motive, rent control, Richard Stallman, Richard Thaler, Robert Shiller, Ronald Reagan, Savings and loan crisis, slashdot, stem cell, systematic bias, Ted Sorensen, the Cathedral and the Bazaar, The Wisdom of Crowds, winner-take-all economy

Friedrich Hayek, “The Origins and Effects of Our Morals: A Problem for Science,” in The Essence of Hayek, 318, 330. 45. See Robert MacCoun et al., Drug War Heresies: Learning from Other Vices, Times, and Places (New York: Cambridge University Press, 2001). 46. The Federalist No. 14 (James Madison). 47. For a good overview, see Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford: Oxford University Press, 2000). 48. See Richard Thaler, ed., Advances in Behavioral Finance, vol. 2 (Princeton, NJ: Princeton University Press, 2005). 49. In fact, some rigorous tests have raised doubts about it. See ibid. 50.

Tyler Cowen-Discover Your Inner Economist Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist-Plume (2008) by Unknown

"World Economic Forum" Davos, airport security, Andrei Shleifer, big-box store, British Empire, business cycle, cognitive dissonance, cross-subsidies, fundamental attribution error, gentrification, George Santayana, haute cuisine, low interest rates, market clearing, microcredit, money market fund, pattern recognition, Ralph Nader, retail therapy, Stephen Hawking, The Wealth of Nations by Adam Smith, trade route, Tragedy of the Commons, transaction costs, Tyler Cowen

If one person is showing off and demonstrating resentment by giving gifts, other people in the room may feel inadequate or underappreciated. This is not helping the world. Other times we give gifts to control people. The gift is not a gift at all. The gift is a signal that if the other person does us favors, he or she can expect more payment in the future. B. Douglas Bernheim, Andrei Shleifer, and Larry Summers conducted a comprehensive study of parental bequests; the paper was titled 'The Strategic Bequest Motive." The results will not surprise any reader of Ben Jonson's Volpone, in which toadies curry favor with a nobleman to receive a large inheritance. In modern America, the more children called or visited their parents, the more likely they received a significant bequest.

Investing Demystified: How to Invest Without Speculation and Sleepless Nights by Lars Kroijer

Andrei Shleifer, asset allocation, asset-backed security, Bernie Madoff, bitcoin, Black Swan, BRICs, Carmen Reinhart, clean tech, compound rate of return, credit crunch, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, estate planning, fixed income, high net worth, implied volatility, index fund, intangible asset, invisible hand, John Bogle, Kenneth Rogoff, low interest rates, market bubble, money market fund, passive investing, pattern recognition, prediction markets, risk tolerance, risk/return, Robert Shiller, selection bias, sovereign wealth fund, too big to fail, transaction costs, Vanguard fund, yield curve, zero-coupon bond

A number of friends were also instrumental in the book’s completion by giving comments on early drafts as I stumbled towards a coherent argument: Steven Felsher with his extremely thorough system of numbering each paragraph (there were 8001 in one draft), former office mate Edwin Datson, Mark Hunter, Stuart Hamilton, Chris Rossbach with his sharp pencil, Paul Amery from Index Universe, Coenraad Vrolijk from Blackrock, Morten Bech from the Bank of International Settlements, Stéphane Guibaud from London School of Economics, and my former professors Andrei Shleifer from Harvard University and Jay Light from Harvard Business School. Finally, I would like to thank all those in and around the finance industry who consistently encouraged me to write about this subject and helped in various ways. While the book in general suggests investing in ways that lead to lower fees to the financial industry, the people I talked to had their customers’ interests as their first objective.

China's Great Wall of Debt: Shadow Banks, Ghost Cities, Massive Loans, and the End of the Chinese Miracle by Dinny McMahon

"World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, American Society of Civil Engineers: Report Card, Andrei Shleifer, Asian financial crisis, bank run, business cycle, California gold rush, capital controls, crony capitalism, dark matter, Deng Xiaoping, Donald Trump, Edward Glaeser, eurozone crisis, financial innovation, fixed income, Gini coefficient, Global Witness, Great Leap Forward, high-speed rail, if you build it, they will come, income inequality, industrial robot, invisible hand, low interest rates, megacity, middle-income trap, military-industrial complex, money market fund, mortgage debt, new economy, peer-to-peer lending, Ponzi scheme, Ronald Reagan, short selling, Silicon Valley, subprime mortgage crisis, too big to fail, trickle-down economics, urban planning, working-age population, zero-sum game

peak, in 2006: Dean Baker, “The Housing Bubble and the Financial Crisis,” Real-World Economics Review, no. 46 (2008): 74, http://paecon.net/PAEReview/issue46/Baker46.pdf. the subprime mortgage crisis: “The Critical Issue: China and China Plays,” Global Equity Strategy, Credit Suisse, July 2015, 6. the urban population: Edward Glaeser, Wei Huang, Yueran Ma, and Andrei Shleifer, “A Real Estate Boom with Chinese Characteristics,” Journal of Economic Perspectives 31, no. 1 (2017): 93–116, http://scholar.harvard.edu/files/shleifer/files/chinaboom_final.pdf. China’s smaller cities: Andy Rothman, “Sinology: Does China Have a Housing Bubble?,” Matthews Asia, November 2016, https://institutional.matthewsasia.com/sinology-china-housing-bubble/.

The Light That Failed: A Reckoning by Ivan Krastev, Stephen Holmes

active measures, Affordable Care Act / Obamacare, Andrei Shleifer, anti-communist, anti-globalists, bank run, Berlin Wall, Black Lives Matter, borderless world, Brexit referendum, corporate governance, David Brooks, deglobalization, deindustrialization, Deng Xiaoping, disinformation, Dissolution of the Soviet Union, Donald Trump, failed state, fake news, Fall of the Berlin Wall, Francis Fukuyama: the end of history, illegal immigration, Kickstarter, knowledge economy, kremlinology, liberal world order, mass immigration, Mikhail Gorbachev, Neil Armstrong, nuclear winter, obamacare, offshore financial centre, open borders, post-truth, postnationalism / post nation state, reserve currency, Ronald Reagan, shared worldview, South China Sea, Steve Bannon, the market place, Thorstein Veblen, too big to fail, Twitter Arab Spring, WikiLeaks

Michnik, Letters from Prison, p. 314. 53. Michnik, ‘Letter from the Gdańsk Prison’ (1985), in Letters from Prison, p. 81. 54. In the social-science literature, a classic example of the insensitivity of outside observers to the historical connotations in the region of the word ‘normality’ is a well-known essay by Andrei Shleifer and Daniel Treisman, ‘Normal Countries. The East 25 Years After Communism’, Foreign Affairs (November/December 2014). 55. Peter Bradshaw, ‘Graduation Review – A Five-Star Study of Grubby Bureaucratic Compromise’, Guardian (19 May 2016). 56. Ruzha Smilova, ‘Promoting “Gender Ideolog” ’: Constitutional Court of Bulgaria Declares Istanbul Convention Unconstitutional’, Oxford Human Rights Hub (22 August 2018); http://ohrh.law.ox.ac.uk/promoting-gender-ideology-constitutional-court-of-bulgaria-declares-istanbul-convention-unconstitutional/. 57.

The Origins of Political Order: From Prehuman Times to the French Revolution by Francis Fukuyama

Admiral Zheng, agricultural Revolution, Andrei Shleifer, Asian financial crisis, Ayatollah Khomeini, barriers to entry, Berlin Wall, blood diamond, California gold rush, cognitive dissonance, colonial rule, conceptual framework, correlation does not imply causation, currency manipulation / currency intervention, Day of the Dead, demographic transition, Deng Xiaoping, double entry bookkeeping, endogenous growth, equal pay for equal work, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, Francisco Pizarro, Garrett Hardin, Hernando de Soto, hiring and firing, invention of agriculture, invention of the printing press, John Perry Barlow, Khyber Pass, land reform, land tenure, means of production, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, RAND corporation, rent-seeking, Right to Buy, Scramble for Africa, selective serotonin reuptake inhibitor (SSRI), spice trade, Stephen Hawking, Steven Pinker, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, Tragedy of the Commons, transaction costs, Washington Consensus, zero-sum game

Hayek, “The Use of Knowledge in Society,” American Economic Review 35, no. 4 (1945): 519–30. See also Fatal Conceit: The Errors of Socialism (Chicago: University of Chicago Press, 1988). 14 Hayek, Law, Legislation and Liberty, pp. 72–74. 15 Ibid., p. 85. 16 See, for example, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny, “Legal Determinants of External Finance,” Journal of Political Economy 52 (1997): 1131–50; and “Law and Finance,” Journal of Political Economy 106 (1998): 1113–55. This literature has sparked a large debate. It is not clear that common law systems provide clear advantages over civil law ones with regard to economic growth.

…

“Justices and Panditas: Some Ironies in Contemporary Readings of the Hindu Legal Past.” Journal of Asian Studies 48(4):757–69. Larmour, Peter. 1997. Governance and Reform in the South Pacific. Canberra: ANU National Centre for Development Studies. La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert W. Vishny. 1997. “Legal Determinants of External Finance.” Journal of Political Economy 52:1131–50. ———. 1998. “Law and Finance.” Journal of Political Economy 106:1113–55. Laslett, Peter, ed. 1972. Household and Family in Past Time. Cambridge: Cambridge University Press. LeBlanc, Steven A., and Katherine E.

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

23andMe, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, Albert Einstein, Alvin Toffler, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, Big Tech, book value, Brexit referendum, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, carbon credits, cloud computing, cognitive bias, computer age, congestion pricing, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, driverless car, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial engineering, financial innovation, full employment, fundamental attribution error, future of work, gentrification, gigafactory, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, Jeremy Corbyn, job automation, Kanban, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low interest rates, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, Ocado, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, private spaceflight, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Robert Solow, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, sunk-cost fallacy, survivorship bias, tacit knowledge, tech billionaire, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, TSMC, Tyler Cowen, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

Giorgio Marrano, Mauro, Jonathan Haskel, and Gavin Wallis. 2009. “What Happened to the Knowledge Economy? ICT, Intangible Investment and Britain’s Productivity Record Revisited.” Review of Income and Wealth 55 (3): 686–716. Glaeser, Edward L. 2011. Triumph of the City. Macmillan. Glaeser, Edward L., Hedi D. Kallal, José A. Scheinkman, and Andrei Shleifer. 1992. “Growth in Cities.” Journal of Political Economy 100 (6): 1126–52. doi:10.1086/261856. Goldin, Claudia, and Lawrence F. Katz. 2008. The Race between Education and Technology. Harvard University Press. Goodridge, P. R., and J. Haskel. 2016. “Big Data in UK Industries: An Intangible Investment Approach.”

Capitalism: Money, Morals and Markets by John Plender

activist fund / activist shareholder / activist investor, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , bonus culture, Bretton Woods, business climate, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, Glass-Steagall Act, God and Mammon, Golden arches theory, Gordon Gekko, greed is good, Hyman Minsky, income inequality, industrial research laboratory, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, plutocrats, price stability, principal–agent problem, profit motive, proprietary trading, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game

The reason so many people did predict these bubbles was that, on most conventional measures of market valuation observed over decades, the markets were hopelessly overvalued. In Fama’s world, when markets are high, investors’ expectations of future returns should be low, and they should be high when markets are low. Yet there is now academic evidence from Robin Greenwood and Andrei Shleifer at Harvard University that when markets are close to their peak, investors are most bullish because they tend to extrapolate recent rises in prices into the future when they form their expectations. In short, they expect the highest future returns when markets are close to a cyclical peak. And when markets are down, they are gloomy for the same reason.

Scarcity: The True Cost of Not Having Enough by Sendhil Mullainathan

American Society of Civil Engineers: Report Card, Andrei Shleifer, behavioural economics, Cass Sunstein, clean water, cognitive load, computer vision, delayed gratification, double entry bookkeeping, Exxon Valdez, fault tolerance, happiness index / gross national happiness, impulse control, indoor plumbing, inventory management, knowledge worker, late fees, linear programming, mental accounting, microcredit, p-value, payday loans, purchasing power parity, randomized controlled trial, Report Card for America’s Infrastructure, Richard Thaler, Saturday Night Live, Walter Mischel, Yogi Berra

The emerging drafts benefited from the wisdom of good friends, colleagues, and loved ones. We especially thank Bindu Ananth, Samura Atallah, Amber Batata, Emily Breza, Andy Conway, Katherine Edin, Alissa Fishbane, Lawrence Katz, Michael Lewis, Lori Lieberman, Jens Ludwig, Anastasia Mann, Frank Schilbach, Antoinette Schoar, Heather Schofield, Josh Schwartzstein, Sharoni Shafir, Andrei Shleifer, Richard Thaler, Laura Trucco, Nick Turk-Browne, and Eric Wanner. The research for this book was generously supported by the Kellogg Foundation, the National Science Foundation, the Canadian Institute for Advanced Research, the John Simon Guggenheim Memorial Foundation, and the National Institute on Aging, as well as our home institutions, Harvard and Princeton.

Deep Value by Tobias E. Carlisle

activist fund / activist shareholder / activist investor, Andrei Shleifer, availability heuristic, backtesting, behavioural economics, book value, business cycle, buy and hold, Carl Icahn, corporate governance, corporate raider, creative destruction, Daniel Kahneman / Amos Tversky, discounted cash flows, financial engineering, fixed income, Henry Singleton, intangible asset, John Bogle, joint-stock company, low interest rates, margin call, passive investing, principal–agent problem, Richard Thaler, risk free rate, riskless arbitrage, Robert Shiller, Rory Sutherland, shareholder value, Sharpe ratio, South Sea Bubble, statistical model, Teledyne, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tim Cook: Apple

Kahneman knew that this demonstration would not undo the effects of “lifelong exposure to a perverse contingency,” but it set him on a path that would eventually lead to the Nobel Memorial Prize in economics. The evidence is that our attitude to mean reversion in stock prices is informed by the same perverse contingency. Behavioral finance researchers Joseph Lakonishok, Andrei Shleifer, and Robert Vishny conducted a landmark study in 1994 into the reasons why value strategies beat the market. Lakonishok et al. concluded that they do so because value strategies are contrarian to the “naïve” strategies followed by other investors who, like the asses clinging to the wheel in Dürer’s woodcut, fail to fully appreciate the implications of mean reversion.22 These naive strategies might range from extrapolating past earnings growth too far into the future; to assuming a trend in stock prices; to overreacting to good or bad news; or to simply equating a good investment with a wellrun company irrespective of price.

Data Action: Using Data for Public Good by Sarah Williams

affirmative action, Amazon Mechanical Turk, Andrei Shleifer, augmented reality, autonomous vehicles, Brexit referendum, Cambridge Analytica, Charles Babbage, City Beautiful movement, commoditize, coronavirus, COVID-19, crowdsourcing, data acquisition, data is the new oil, data philanthropy, data science, digital divide, digital twin, Donald Trump, driverless car, Edward Glaeser, fake news, four colour theorem, global village, Google Earth, informal economy, Internet of things, Jane Jacobs, John Snow's cholera map, Kibera, Lewis Mumford, Marshall McLuhan, mass immigration, mass incarceration, megacity, military-industrial complex, Minecraft, neoliberal agenda, New Urbanism, Norbert Wiener, nowcasting, oil shale / tar sands, openstreetmap, place-making, precautionary principle, RAND corporation, ride hailing / ride sharing, selection bias, self-driving car, sentiment analysis, Sidewalk Labs, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, Steven Levy, the built environment, The Chicago School, The Death and Life of Great American Cities, transatlantic slave trade, Uber for X, upwardly mobile, urban planning, urban renewal, W. E. B. Du Bois, Works Progress Administration

Smolinski, and Larry Brilliant. “Detecting Influenza Epidemics Using Search Engine Query Data.” Nature 457, no. 7232 (February 2009): 1012–1014. https://doi.org/10.1038/nature07634. Gitelman, Lisa. “Raw Data” Is an Oxymoron. Cambridge, MA: MIT Press, 2013. Glaeser, Edward, Wei Huang, Yueran Ma, and Andrei Shleifer. “A Real Estate Boom with Chinese Characteristics.” Journal of Economic Perspectives 31, no. 1 (2017): 93–116. Glaeser, Edward L., Jed Kolko, and Albert Saiz. “Consumer City.” Journal of Economic Geography 1, no. 1 (2001): 27–50. https://doi.org/10.1093/jeg/1.1.27. Glass, James J. “Citizen Participation in Planning: The Relationship Between Objectives and Techniques.”

The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy by David Gelles

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 3D printing, accounting loophole / creative accounting, Adam Neumann (WeWork), air traffic controllers' union, Alan Greenspan, Andrei Shleifer, Bear Stearns, benefit corporation, Bernie Sanders, Big Tech, big-box store, Black Monday: stock market crash in 1987, Boeing 737 MAX, call centre, carbon footprint, Carl Icahn, collateralized debt obligation, Colonization of Mars, company town, coronavirus, corporate governance, corporate raider, corporate social responsibility, COVID-19, Credit Default Swap, credit default swaps / collateralized debt obligations, disinformation, Donald Trump, financial deregulation, financial engineering, fulfillment center, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, inventory management, It's morning again in America, Jeff Bezos, junk bonds, Kaizen: continuous improvement, Kickstarter, Lean Startup, low interest rates, Lyft, manufacturing employment, Mark Zuckerberg, Michael Milken, Neil Armstrong, new economy, operational security, profit maximization, profit motive, public intellectual, QAnon, race to the bottom, Ralph Nader, remote working, Robert Bork, Ronald Reagan, Rutger Bregman, self-driving car, shareholder value, side hustle, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, Steve Ballmer, stock buybacks, subprime mortgage crisis, TaskRabbit, technoutopianism, Travis Kalanick, Uber and Lyft, uber lyft, warehouse robotics, Watson beat the top human players on Jeopardy!, We are the 99%, WeWork, women in the workforce

“We thought Kidder would”: Welch, Byrne, Jack: Straight from the Gut, 218. “Having this reprehensible scheme”: Stratford Sherman, “GE’s Costly Lesson on Wall Street,” Fortune, May 9, 1988, https://money.cnn.com/magazines/fortune/fortune_archive/1988/05/09/70515/index.htm. “We screwed up”: Rocheleau, interview. Of the companies: Andrei Shleifer and Robert W. Vishny, “The Takeover Wave of the 1980s,” Science New Series, Vol. 249, No. 4970 (August 17, 1990): 745–749, https://www.jstor.org/stable/2878074. “There’s no commitment”: Janet Lowe, Jack Welch Speaks: Wit and Wisdom from the World’s Greatest Business Leader (New York: Wiley, 2008), 21.

Reinventing the Bazaar: A Natural History of Markets by John McMillan

accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, classic study, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, decentralized internet, Deng Xiaoping, Dutch auction, electricity market, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Great Leap Forward, Hacker News, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, independent contractor, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John Perry Barlow, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Robert Solow, Ronald Coase, Ronald Reagan, sealed-bid auction, search costs, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, world market for maybe five computers, Xiaogang Anhui farmers, yield management

According to the watch-dog organization Transparency International, Indonesia had the dubious distinction of being the world’s third most corrupt country in 1999, while Russia came in seventeenth place.8 How then did markets operate in Indonesia under extensive corruption, while in Russia markets were stifled? The differing effects of corruption in Indonesia and Russia are explained by a theory of Andrei Shleifer and Robert Vishny.9 If the fire inspector, the tax evaluator, the customs official, the state-bank loan officer, and the business-license registrar each have the power to damage a firm, they can all extort profits from it. Under free-for-all extortion, each knows that any money left with the firm will probably be taken by some other bureaucrat, so each takes as much as possible.

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

accounting loophole / creative accounting, airline deregulation, Alan Greenspan, Andrei Shleifer, asset allocation, Bretton Woods, business cycle, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, equity risk premium, financial engineering, fixed income, frictionless, global macro, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, junk bonds, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low cost airline, low interest rates, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, Phillips curve, price mechanism, purchasing power parity, risk free rate, risk tolerance, risk-adjusted returns, risk/return, rolling blackouts, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, statistical arbitrage, stocks for the long run, survivorship bias, systematic bias, Tax Reform Act of 1986, the market place, transaction costs, Y2K, yield curve, zero-sum game

Harvard Business Review (July/August 1984): 102–10. Jensen, Michael C. “The Performance of Mutual Funds in the Period 1945–1964.” Journal of Finance 23 (May 1968): 389–416. La Jolla Economics. “The Rise of the en Y Is Bullish for the World Economy.” Economic Study (September 28, 1999). La Porta, Rafael, Josef Lakonishok, Andrei Shleifer, and Robert Vishny. “Good News for Value Stocks: Further Evidence on Market Efficiency.” Journal of Finance 52, No. 2 (June 1997): 859–74. Lanstein, Ronald, Kenneth Reid, and Barr Rosenburg. “Persuasive Evidence of Market Inefficiency.” Journal of Portfolio Management 11 (1985): 9–17. Lee, Joan, and Don Phillips.

Lectures on Urban Economics by Jan K. Brueckner

accelerated depreciation, affirmative action, Andrei Shleifer, behavioural economics, company town, congestion charging, Edward Glaeser, invisible hand, market clearing, mortgage tax deduction, negative equity, New Economic Geography, profit maximization, race to the bottom, rent control, rent-seeking, Ronald Coase, The Nature of the Firm, transaction costs, urban sprawl

Cities, Agglomeration and Spatial Equilibrium. Oxford University Press. Glaeser, Edward L., Joseph Gyourko, and Raven Saks. 2005. Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices. Journal of Law & Economics 48: 331–370. Glaeser, Edward L., Hedi D. Kallal, José A. Scheinkman, and Andrei Shleifer. 1992. Growth in Cities. Journal of Political Economy 100: 1126–1152. Glaeser, Edward L., and Matthew E. Kahn. 2004. Sprawl and Urban Growth. In Handbook of Regional and Urban Economics, volume IV, ed. J. V. Henderson and J.-F. Thisse. Elsevier. Glaeser, Edward L., Matthew E. Kahn, and Jordan Rappaport. 2008.

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation by Sebastien Page

Andrei Shleifer, asset allocation, backtesting, Bernie Madoff, bitcoin, Black Swan, Bob Litterman, book value, business cycle, buy and hold, Cal Newport, capital asset pricing model, commodity super cycle, coronavirus, corporate governance, COVID-19, cryptocurrency, currency risk, discounted cash flows, diversification, diversified portfolio, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, future of work, Future Shock, G4S, global macro, implied volatility, index fund, information asymmetry, iterative process, loss aversion, low interest rates, market friction, mental accounting, merger arbitrage, oil shock, passive investing, prediction markets, publication bias, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, robo advisor, seminal paper, shareholder value, Sharpe ratio, sovereign wealth fund, stochastic process, stochastic volatility, stocks for the long run, systematic bias, systematic trading, tail risk, transaction costs, TSMC, value at risk, yield curve, zero-coupon bond, zero-sum game

Retrieved from https://www.cambridgeassociates.com/research/private-investing-for-private-investors-life-can-be-better-after-40/. Baele, Lieven, Geert Bekaert, and Koen Inghelbrecht. 2010. “The Determinants of Stock and Bond Return Comovements,” Review of Financial Studies, vol. 23, no. 6, pp. 2374–2428. Barberis, Nicholas, Andrei Shleifer, and Jeffrey Wurgler. February 2005. “Comovement,” Journal of Financial Economics, vol. 75, no. 2, pp. 283–317. Baumeister, Roy F., Ellen Bratslavsky, Catrin Finkenauer, and Kathleen D. Vohs. 2001. “Bad Is Stronger Than Good,” Review of General Psychology, vol. 5, no. 4, pp. 323–370. Beardsley, Xiaoxin W., Brian Field, and Mingqing Xiao. 2012.

The Wisdom of Crowds by James Surowiecki

Alan Greenspan, AltaVista, Andrei Shleifer, Apollo 13, asset allocation, behavioural economics, Cass Sunstein, classic study, congestion pricing, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Great Leap Forward, Gregor Mendel, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Bogle, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Ronald Coase, Ronald Reagan, seminal paper, shareholder value, short selling, Silicon Valley, South Sea Bubble, tacit knowledge, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, vertical integration, world market for maybe five computers, Yogi Berra, zero-sum game

An especially good account of the relationship between behavioral finance and traditional finance theory is Robert Shiller, “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives 17 (2003): 83–104. There’s also lots of good material on irrationality in Shiller’s Irrational Exuberance (Princeton: Princeton University Press, 2000). The limits of arbitrage are well explained in Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (New York: Oxford University Press, 2000). And a mountain of evidence and intelligent analysis is marshaled in support of the proposition that investor psychology matters in Kent Daniel, David Hirshleifer, and Siew Hong Teoh, “Investor Psychology in Capital Markets: Evidence and Policy Implications,” Journal of Monetary Economics 49 (2002): 139–209.

The Permanent Portfolio by Craig Rowland, J. M. Lawson

Alan Greenspan, Andrei Shleifer, asset allocation, automated trading system, backtesting, bank run, banking crisis, Bear Stearns, Bernie Madoff, buy and hold, capital controls, correlation does not imply causation, Credit Default Swap, currency risk, diversification, diversified portfolio, en.wikipedia.org, fixed income, Flash crash, high net worth, High speed trading, index fund, inflation targeting, junk bonds, low interest rates, margin call, market bubble, money market fund, new economy, passive investing, Ponzi scheme, prediction markets, risk tolerance, stocks for the long run, survivorship bias, technology bubble, transaction costs, Vanguard fund

Diversify out in case of problems at your company that jeopardizes the stock and your job at the same time. Notes 1. If Index Funds Perform Better, Why Are Actively Managed Funds More Popular?, Knowledge@Wharton, February 2, 2011. 2. Michael E. Porter, Cases in Competitive Strategy (New York: Free Press, 1983), 212. 3. Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, “The Impact of Institutional Trading on Stock Prices,” Journal of Financial Economics 32 (1992): 23–43. 4. Bob Pisani. Man Vs. Machine: Pros and Cons of High-Speed Trading. CNBC, September 13, 2011, www.cnbc.com/id/39041598/Man_Vs_Machine_Pros_and_Cons_of_High_Speed_Trading.

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bear Stearns, behavioural economics, Bernie Madoff, Bretton Woods, business climate, business cycle, carbon tax, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency risk, diversification, Edward Glaeser, financial innovation, fixed income, floating exchange rates, full employment, Glass-Steagall Act, global supply chain, Goldman Sachs: Vampire Squid, Greenspan put, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kaizen: continuous improvement, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, longitudinal study, low interest rates, machine readable, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, Phillips curve, price stability, profit motive, proprietary trading, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Ronald Reagan, Savings and loan crisis, school vouchers, seminal paper, short selling, sovereign wealth fund, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

pid=20601087& refer=home&sid=aXHDSbOcAChc, accessed March 10, 2010. 13 See Atif Mian and Amir Sufi, “The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis,” Quarterly Journal of Economics 124, no. 4 (November 2009): 1449–96. 14 For a model of how volume can swamp incentives, see Andrei Shleifer and Robert Vishny, “Unstable Banking,” NBER Working Paper 14943, National Bureau of Economic Research, Cambridge, MA, 2009. 15 See Frankel, “The Risk of Relying on Reputational Capital.” 16 Peter Wallison, “Barney Frank: Predatory Lender,” Wall Street Journal, October 16, 2009. Chapter Seven.

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"World Economic Forum" Davos, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, availability heuristic, bank run, behavioural economics, Black Swan, business cycle, Cass Sunstein, classic study, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Oklahoma City bombing, Pareto efficiency, Paul Samuelson, placebo effect, precautionary principle, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, social discount rate, source of truth, statistical model, stochastic process, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

They maintain that the mere fact that the major event did not happen cannot be taken to mean that the market was irrational. Maybe they are right. One cannot decisively prove that the stock market has been irrational. But in all of this debate no one has offered any real evidence to think that the volatility is rational.6 The price changes appear instead to be correlated with social changes of various kinds. Andrei Shleifer and Sendhil Mullainathan have observed the changes in Merrill Lynch advertisements. Prior to the stock market bubble, in the early 1990s, Merrill Lynch was running advertisements showing a grandfather fishing with his grandson. The ad was captioned: “Maybe you should plan to grow rich slowly.”

The Divide: A Brief Guide to Global Inequality and Its Solutions by Jason Hickel

"World Economic Forum" Davos, Alan Greenspan, Andrei Shleifer, Asian financial crisis, Atahualpa, Bartolomé de las Casas, Bernie Sanders, Bob Geldof, Bretton Woods, British Empire, Cape to Cairo, capital controls, carbon credits, carbon footprint, carbon tax, clean water, collective bargaining, colonial rule, Cornelius Vanderbilt, David Attenborough, David Graeber, David Ricardo: comparative advantage, declining real wages, degrowth, dematerialisation, Doha Development Round, Elon Musk, European colonialism, falling living standards, financial deregulation, flying shuttle, Fractional reserve banking, Francisco Pizarro, full employment, Glass-Steagall Act, Global Witness, Hans Rosling, happiness index / gross national happiness, Howard Zinn, income inequality, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, James Watt: steam engine, laissez-faire capitalism, land reform, land value tax, liberal capitalism, Live Aid, Mahatma Gandhi, Money creation, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, negative emissions, Nelson Mandela, offshore financial centre, oil shale / tar sands, out of africa, Phillips curve, planned obsolescence, plutocrats, purchasing power parity, race to the bottom, rent control, road to serfdom, Ronald Reagan, Scramble for Africa, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, structural adjustment programs, TED Talk, The Chicago School, The Spirit Level, trade route, transatlantic slave trade, transfer pricing, trickle-down economics, Washington Consensus, WikiLeaks, women in the workforce, Works Progress Administration

If you’re curious enough to look into the science behind the Doing Business rankings, you’ll find that it’s actually not science at all. An official report published in June 2013 revealed that the system has not been peer-reviewed.34 Instead, it is based almost entirely on the papers of two of the economists who invented it, Simeon Djankov and Andrei Shleifer, both of whom are well-known neoliberal ideologues. Why should we listen to these unelected technocrats? And who gave the World Bank the power to rank countries according to the narrow criteria of ‘doing business’? An increasing number of civil-society groups are raising these questions, and a recent review ordered by World Bank President Jim Kim even recommends abandoning the ranking system altogether.

The Great Reversal: How America Gave Up on Free Markets by Thomas Philippon

airline deregulation, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, barriers to entry, Big Tech, bitcoin, blockchain, book value, business cycle, business process, buy and hold, Cambridge Analytica, carbon tax, Carmen Reinhart, carried interest, central bank independence, commoditize, crack epidemic, cross-subsidies, disruptive innovation, Donald Trump, driverless car, Erik Brynjolfsson, eurozone crisis, financial deregulation, financial innovation, financial intermediation, flag carrier, Ford Model T, gig economy, Glass-Steagall Act, income inequality, income per capita, index fund, intangible asset, inventory management, Jean Tirole, Jeff Bezos, Kenneth Rogoff, labor-force participation, law of one price, liquidity trap, low cost airline, manufacturing employment, Mark Zuckerberg, market bubble, minimum wage unemployment, money market fund, moral hazard, natural language processing, Network effects, new economy, offshore financial centre, opioid epidemic / opioid crisis, Pareto efficiency, patent troll, Paul Samuelson, price discrimination, profit maximization, purchasing power parity, QWERTY keyboard, rent-seeking, ride hailing / ride sharing, risk-adjusted returns, Robert Bork, Robert Gordon, robo advisor, Ronald Reagan, search costs, Second Machine Age, self-driving car, Silicon Valley, Snapchat, spinning jenny, statistical model, Steve Jobs, stock buybacks, supply-chain management, Telecommunications Act of 1996, The Chicago School, the payments system, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, Travis Kalanick, vertical integration, Vilfredo Pareto, warehouse automation, zero-sum game

The idea that free and competitive markets work best is supported by much empirical evidence, and economists spread the gospel of free markets in large part because it had proven so successful in America. In their highly influential paper, Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (2002) find that the regulation of entry is associated with higher levels of corruption, and that countries with more open and accountable political systems regulate entry less. Multilateral agencies such as the World Bank and the OECD provided similar advice around the world. In 1999, the OECD noted that the “United States has been a world leader in regulatory reform for a quarter century.

Armed Humanitarians by Nathan Hodge

Andrei Shleifer, anti-communist, Berlin Wall, British Empire, clean water, colonial rule, European colonialism, failed state, friendly fire, Golden arches theory, IFF: identification friend or foe, jobless men, Khyber Pass, kremlinology, land reform, Mikhail Gorbachev, no-fly zone, off-the-grid, old-boy network, operational security, Potemkin village, private military company, profit motive, RAND corporation, Ronald Reagan, satellite internet, Silicon Valley, South China Sea, Suez crisis 1956, The Wealth of Nations by Adam Smith, too big to fail, walking around money

Mostly I was describing lunch.18 Foreign aid budgets were often singled out by conservatives as a waste of taxpayer money—and aid programs to Eastern Europe and the former Soviet Union in the 1990s set new standards for corruption and mismanagement. In Russia, USAID hired the Harvard Institute for International Development to advise the government on privatization. The project was directed by Andrei Shleifer, a Russian-born émigré and tenured professor of economics at Harvard; another consultant to the project was Jonathan Hay, a Rhodes Scholar and former World Bank consultant. Both men, it turned out, had a massive conflict of interest: While helping the Russian government design the rules for a market economy, they were simultaneously making personal investments in Russia.19 The U.S. government later implicated both men in a conspiracy to defraud the government, and Harvard University eventually paid $26.5 million to the U.S. government to settle a lawsuit after a U.S.

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, antiwork, Asian financial crisis, bank run, banking crisis, basic income, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, bitcoin, blockchain, bond market vigilante , Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, carbon tax, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, fake news, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, green new deal, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, low interest rates, market bubble, market clearing, market fundamentalism, means of production, Modern Monetary Theory, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Ponzi scheme, post-truth, price stability, public intellectual, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, secular stagnation, Seymour Hersh, stock buybacks, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, We are all Keynesians now, working-age population

Not much, argued Milton Friedman in an influential 1953 paper: smart investors will make money by buying when the idiots sell and selling when they buy and will stabilize markets in the process. But the second strand of behavioral finance says that Friedman was wrong, that financial markets are sometimes highly unstable, and right now that view seems hard to reject. Probably the most influential paper in this vein was a 1997 publication by Andrei Shleifer of Harvard and Robert Vishny of Chicago, which amounted to a formalization of the old line that “the market can stay irrational longer than you can stay solvent.” As they pointed out, arbitrageurs—the people who are supposed to buy low and sell high—need capital to do their jobs. And a severe plunge in asset prices, even if it makes no sense in terms of fundamentals, tends to deplete that capital.

Democracy and Prosperity: Reinventing Capitalism Through a Turbulent Century by Torben Iversen, David Soskice

Andrei Shleifer, assortative mating, augmented reality, barriers to entry, Big Tech, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, centre right, clean tech, cloud computing, collateralized debt obligation, collective bargaining, colonial rule, confounding variable, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, deskilling, Donald Trump, first-past-the-post, full employment, general purpose technology, gentrification, Gini coefficient, hiring and firing, implied volatility, income inequality, industrial cluster, inflation targeting, invisible hand, knowledge economy, labor-force participation, liberal capitalism, low skilled workers, low-wage service sector, means of production, middle-income trap, mirror neurons, mittelstand, Network effects, New Economic Geography, new economy, New Urbanism, non-tariff barriers, Occupy movement, offshore financial centre, open borders, open economy, passive investing, precariat, race to the bottom, radical decentralization, rent-seeking, RFID, road to serfdom, Robert Bork, Robert Gordon, Silicon Valley, smart cities, speech recognition, tacit knowledge, The Future of Employment, The Great Moderation, The Rise and Fall of American Growth, the strength of weak ties, too big to fail, trade liberalization, union organizing, urban decay, vertical integration, Washington Consensus, winner-take-all economy, working-age population, World Values Survey, young professional, zero-sum game

National Bureau of Economic Research (NBER) conference volume, ed. E. L. Glaeser. Chicago: University of Chicago Press. Glaeser, Edward L. 2011. The Triumph of the City. New York: MacMillanhttps://skole200.dk/wp-.content/uploads/2014/08/Artikel_Skolens_Udvikling_1960_70.pdf Glaeser, Edward. L., Hedi D. Kallal, José A. Scheinkman, and Andrei Shleifer. 1992. “Growth in Cities.” Journal of Political Economy 100 (6): 1126–52. Glaeser, Edward L., and Matthew G. Resseger. 2010. “The Complementarity between Cities and Skills.” Journal of Regional Science 50 (1): 221–44. Glyn, Andrew. 2007. Capitalism Unleashed: Finance Globalization and Welfare.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, behavioural economics, Bernie Madoff, biodiversity loss, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, electricity market, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Glass-Steagall Act, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low interest rates, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, military-industrial complex, minimum wage unemployment, moral hazard, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, price elasticity of demand, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, search costs, shareholder value, sugar pill, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

On the other hand, Dewald et al. found that the errors did not significantly affect the conclusions in the majority of cases. 8 Another example would be whether asset markets are efficient. There has been a long-running battle between Eugene Fama and his associates in support of the efficient market hypothesis, and Andrei Shleifer, Richard Thaler and others in support of the inefficient market hypothesis. 9 Donald McCloskey and Deirdre McCloskey are the same person, the transition occurring (from Donald to Deirdre) in 1995. 10 A good Internet source is the History of Economic Thought website developed through the New School of Economic Research.

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

affirmative action, Alan Greenspan, Albert Einstein, Andrei Shleifer, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Boeing 747, Bretton Woods, business cycle, buy and hold, capital controls, carbon tax, Cass Sunstein, central bank independence, classic study, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency risk, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, Great Leap Forward, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, junk bonds, Kenneth Rogoff, libertarian paternalism, low interest rates, low skilled workers, Malacca Straits, managed futures, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, seminal paper, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, tech worker, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

“A Useful Poison,” The Economist, December 14, 2000. 7. “Fighting Malaria,” The Economist, May 1, 2003. 8. “A Useful Poison,” The Economist, December 14, 2000. 9. Gary Becker and Guity Nashat Becker, The Economics of Life (New York: McGraw-Hill, 1996). 10. Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, The Regulation of Entry, NBER Working Paper No. W7892 (National Bureau of Economic Research, September 2000). 11. Geeta Anand, “India’s Colleges Battle a Thicket of Red Tape,” Wall Street Journal, November 13, 2008. 12. Stephen Castle, “Europe Relaxes Rules on Sale of Ugly Fruits and Vegetables,” New York Times, November 13, 2008. 13.

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, classic study, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, equity risk premium, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, Future Shock, German hyperinflation, Greenspan put, Herman Kahn, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Bostrom, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, rolling blackouts, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, subprime mortgage crisis, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, W. E. B. Du Bois, Washington Consensus, Yom Kippur War

See also Michael J. Mauboussin, More Than You Know: Finding Financial Wisdom in Unconventional Places (New York / Chichester, 2006). 12 Mark Buchanan, The Social Atom: Why the Rich Get Richer, Cheaters Get Caught, and Your Neighbor Usually Looks Like You (New York, 2007), p. 54. 13 For an introduction, see Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance (Oxford, 2000). For some practical applications see Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven, 2008). 14 See Peter Bernstein, Capital Ideas Evolving (New York, 2007). 15 See for example James Surowiecki, The Wisdom of Crowds (New York, 2005); Ian Ayres, Supercrunchers: How Anything Can Be Predicted (London, 2007). 16 Daniel Gross, ‘The Forecast for Forecasters is Dismal’, New York Times, 4 March 2007. 17 The classic work, first published in 1841, is Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds (New York, 2003 [1841]). 18 Yudkowsky, ‘Cognitive Biases’, pp. 110f. 19 For an introduction to Lo’s work, see Bernstein, Capital Ideas Evolving , ch. 4.

Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

active measures, Andrei Shleifer, AOL-Time Warner, asset allocation, automated trading system, barriers to entry, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, compound rate of return, computerized trading, corporate governance, correlation coefficient, data acquisition, diversified portfolio, equity risk premium, fault tolerance, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, High speed trading, index arbitrage, index fund, information asymmetry, information retrieval, information security, interest rate swap, invention of the telegraph, job automation, junk bonds, law of one price, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market clearing, market design, market fragmentation, market friction, market microstructure, money market fund, Myron Scholes, National best bid and offer, Nick Leeson, open economy, passive investing, pattern recognition, payment for order flow, Ponzi scheme, post-materialism, price discovery process, price discrimination, principal–agent problem, profit motive, proprietary trading, race to the bottom, random walk, Reminiscences of a Stock Operator, rent-seeking, risk free rate, risk tolerance, risk-adjusted returns, search costs, selection bias, shareholder value, short selling, short squeeze, Small Order Execution System, speech recognition, statistical arbitrage, statistical model, survivorship bias, the market place, transaction costs, two-sided market, vertical integration, winner-take-all economy, yield curve, zero-coupon bond, zero-sum game

Trading is hazardous to your wealth: The common stock investment performance of individual investors. Journal of Finance 55(2), 773–806. Bernstein, Peter L. 1996. Against the Gods: The Remarkable Story of Risk. (John Wiley & Sons, New York). DeLong, Bradford J., Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. 1989. The size and incidence of the losses from noise trading. Journal of Finance 44(3), 681–696. DeLong, Bradford J., Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann. 1991. The survival of noise traders in financial markets. Journal of Business 64(1), 1–20. Gervais, S., and Terrance Odean. 2001. Learning to be overconfident.

Making Globalization Work by Joseph E. Stiglitz

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, benefit corporation, Berlin Wall, blood diamond, business process, capital controls, carbon tax, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Garrett Hardin, Gini coefficient, global reserve currency, Global Witness, Great Leap Forward, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low interest rates, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, negative emissions, new economy, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Seymour Hersh, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, Tragedy of the Commons, trickle-down economics, union organizing, Washington Consensus, zero-sum game

The other is ideological: the Bush administration has consistently opposed efforts to create and strengthen multilateral institutions; an international bankruptcy court, which might naturally evolve as a result of an attempt to create a sovereign debt restructuring mechanism, would be seen as an anathema. 28.American bankruptcy law recognizes this difference; there is a separate chapter (Chapter 9) of bankruptcy law dealing with public bodies. 29.Andrei Shleifer, a professor at Harvard, and a close friend and associate of then undersecretary of the Treasury Larry Summers, was appointed to advise Russia on its privatization through an AID (America’s development agency) contract with Harvard. (At the time, Treasury played a central role in designing economic policies toward Russia.)