The Myth of the Rational Market

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A First-Class Catastrophe: The Road to Black Monday, the Worst Day in Wall Street History by Diana B. Henriques

Alan Greenspan, asset allocation, bank run, banking crisis, Bear Stearns, behavioural economics, Bernie Madoff, Black Monday: stock market crash in 1987, break the buck, buttonwood tree, buy and hold, buy low sell high, call centre, Carl Icahn, centralized clearinghouse, computerized trading, Cornelius Vanderbilt, corporate governance, corporate raider, Credit Default Swap, cuban missile crisis, Dennis Tito, Edward Thorp, Elliott wave, financial deregulation, financial engineering, financial innovation, Flash crash, friendly fire, Glass-Steagall Act, index arbitrage, index fund, intangible asset, interest rate swap, It's morning again in America, junk bonds, laissez-faire capitalism, locking in a profit, Long Term Capital Management, margin call, Michael Milken, money market fund, Myron Scholes, plutocrats, Ponzi scheme, pre–internet, price stability, proprietary trading, quantitative trading / quantitative finance, random walk, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, stock buybacks, The Chicago School, The Myth of the Rational Market, the payments system, tulip mania, uptick rule, Vanguard fund, web of trust

Clowes, The Money Flood: How Pension Funds Revolutionized Investing (Hoboken, NJ: John Wiley and Sons, 2000), pp. 84–92 and 198–200; Kate Ancell, “The Origin of the First Index Fund,” University of Chicago Booth School of Business, 2012, http://www.crsp.com/files/SpringMagazine_IndexFund.pdf; and Fox, The Myth of the Rational Market, pp. 137–41. that has had a greater impact on American markets: Indeed, Madrick, Seven Bad Ideas, nominates it as one of his “Seven Bad Ideas.” this innovative team was road-testing index funds: Bernstein, Capital Ideas, pp. 234–35; and Fox, The Myth of the Rational Market, p. 127. measuring pension fund performance: Interview with Kelly Haughton, July 8, 2015. Haughton, a notable financial engineer who worked at WFIA in the late 1970s, had even closer ties to the finance professors at Berkeley: his young wife was the department’s secretary, he frequented campus social events with Hayne Leland and his faculty colleagues, and occasionally a friend who worked for Barr Rosenberg invited him over to brew beer in Professor Rosenberg’s basement.

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after earning a doctorate in economics: Sandor, Good Derivatives, p. 17–18. such as the daily prices on America’s stock markets: Ibid. mathematical ideas to guide investment strategies: The evolution of quantitative analysis from an academic specialty to a force in the modern market is ably told by Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: Harper Business, 2011); Peter Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street (Hoboken, NJ: John Wiley and Sons, 2005); David Leinweber, Nerds on Wall Street: Math, Machines and Wired Markets (Hoboken, NJ: John Wiley and Sons, 2009); Richard Bookstaber, A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation (Hoboken, NJ: John Wiley and Sons, 2007); Jeff Madrick, Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World (New York: Alfred A.

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By the late 1970s, Rosenberg’s “quantitative models,” which Wall Street nicknamed “Barr’s Bionic Betas,” had made him a multimillionaire and put him on the cover of Institutional Investor magazine, which featured a cheeky article by Chris Welles headlined “Who Is Barr Rosenberg? And What the Hell Is He Talking About?” (In finance, beta is defined as the measure of a stock’s sensitivity to the movements of the overall market.) See Bernstein, Capital Ideas, pp. 256–68, 275, 280–82; and Fox, The Myth of the Rational Market, pp. 127, 138–40, 151, 224, and 326–27. After a long and influential career, he stunned the quantitative world by running afoul of the SEC by allegedly failing to disclose a software glitch that arose in one of his fund management programs. On September 22, 2011, the SEC announced that Rosenberg, without admitting or denying its allegations, had agreed to be barred from the securities industry and to pay $2.5 million to settle the case.

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, 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.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Alan Greenspan (2007) The Age of Turbulence: Adventures in a New World, Allen Lane, London: 124. 30. Fox, The Myth of the Rational Market: 41. 31. MacKenzie, An Engine, Not a Camera: 95. 32. Ibid: 8–12. 33. van Overtveldt, The Chicago School: 67. 34. Dan Gardner (2008) Risk—The Science and Politics of Fear, Virgin Books, London: 53. 35. van Overtveldt, The Chicago School: 291. 36. Quoted in Greenspan, The Age of Turbulence: 55. 37. Quoted in van Overtveldt, The Chicago School: 172. 38. Quoted in Fox, The Myth of the Rational Market: 269. 39. Daniel Altman “Managing Globalization: Q & A with Joseph Stiglitz” (11 October 2006) The International Herald Tribune. 40.

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Philip Mirowski (2002) Machine Dreams: Economics Becomes a Cyborg Science, Cambridge University Press, Cambridge: 203, 204. 10. Johan van Overtveldt (2007) The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionised Economics and Business, Agate Books, Chicago: 9. 11. Ibid: 91. 12. Justin Fox (2009) The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street, Harper Business, New York: 252. 13. van Overtveldt, The Chicago School: 85–7. 14. Pierre Bayard (2007) How to Talk About Books You Haven’t Read, Bloomsbury, London. 15. Yergin and Stanislaw, The Commanding Heights: 89. The quote is derived from John Ranelagh’s book, (1991) Thatcher’s People: an insider’s account of the politics, the power, and the personalities, Harper Collins, London.

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Ben S. Bernanke, Remarks at the Conference to Honor Milton Friedman (8 November 2002), University of Chicago, Chicago, Illinois. 32. Frank Knight “What is truth in economics?” (1940) Journal of Political Economy. Chapter 8—False Gods, Fake Prophecies 1. Quoted in Justin Fox (2009) The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street, Harper Business, New York: 79. 2. Donald MacKenzie (2008) An Engine, Not a Camera: How Financial Models Shape Markets, MIT Press, Cambridge, Massachusetts: 5. 3. Ibid: 71. 4. Peter Bernstein (2005) Capital Ideas: The Improbable Origins of Modern Wall Street, John Wiley, New Jersey: 60. 5.

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

No one loses face, in this club, for having been wrong.11 Economists were not of a temperament to suffer what they deemed the New Disrespect lying down. Anyhow, it was proving galling to turn the other cheek when reputable news outlets were sneering “What Good Are Economists, Anyway?” (Coy) and “What Went Wrong with Economics?” (Economist), and books from reputable publishers were quick off the mark trumpeting “The Myth of the Rational Market” (Fox) and “A Failure of Capitalism” (Posner). “Is it fair to attack the economics profession? To a large degree, yes.”12 People were of course always welcome to mock at economists in private, which was nothing new, but this seemed to be a different sort of animal. Remonstrants flocked to the talk shows, the newspapers, magazines, and op-ed pages; but beyond that, they also entered the blogosphere in a big way for perhaps the first time.

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“The Construction of a Global Profession,” American Journal of Sociology 117 (2006): 145–94. Fourcade, Marion. Economists and Societies (Princeton: Princeton University Press, 2009). Foust, Dean, and Aaron Pressman. “Credit Scores: Not So Magic Numbers,” Business Week, February 7, 2008. Fox, Justin. The Myth of the Rational Market (New York: HarperCollins, 2009). Frank, David, and Jay Gabler. Reconstructing the University (Stanford: Stanford University Press, 2006). Frank, Robert. “Flaw in Free Markets: Humans,” New York Times, September 14, 2009. Frank, Thomas. One Market Under God (New York: Anchor, 2000).

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., “Governance, Regulation and Financial Market Instability.” 20 For the specifics see Nik-Khah, “Chicago Neoliberalism and the Genesis of the Milton Friedman Institute.” There are some subsequent indications that this fund drive did not go well. 21 Campbell, “Neoliberalism in Crisis.” 22 See, for instance, Callinicos, Bonfire of Illusions; Cassidy, How Markets Fail; Fox, The Myth of the Rational Market; Westbrook, Out of the Crisis; Yves Smith, Econned; Mason, Meltdown; Kaletsky, Capitalism 4.0; Stiglitz, Freefall. 23 The various approaches to social epistemology within the philosophy literature are fascinating; without endorsing any specific position, one can sample the options in Goldman and Whitcomb, Social Epistemology; Kourany, Philosophy of Science after Feminism; Kusch, Knowledge by Agreement; Longino, The Fate of Knowledge; Solomon, Social Empiricism; Fuller, Social Epistemology; Harding, Can Theories Be Refuted?.

A Man for All Markets by Edward O. Thorp

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 3Com Palm IPO, Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, beat the dealer, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, book value, Brownian motion, buy and hold, buy low sell high, caloric restriction, caloric restriction, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Garrett Hardin, George Santayana, German hyperinflation, Glass-Steagall Act, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Bogle, John Meriwether, John Nash: game theory, junk bonds, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, Mason jar, merger arbitrage, Michael Milken, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, PalmPilot, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, power law, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stock buybacks, stocks for the long run, survivorship bias, tail risk, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Tragedy of the Commons, uptick rule, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

Actually, it invests in each stock proportionally to the market value of the so-called float, which is the estimated fraction of freely trading shares, as opposed to shares being held which are not available for trading. The difference in performance between the two methods has been negligible. it first appeared Justin Fox, The Myth of the Rational Market, page 119, reports that Ben Graham, in 1962, pointed out that investment funds as a whole shouldn’t expect to beat the market “because in a significant sense they…are the market.” the clearest exposition Sharpe, William, “The Arithmetic of Active Management,” Financial Analyst’s Journal, Vol. 47, No. 1, pp. 7–9, January/February, 1991.

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CHAPTER 26 beat the market This sounds nonsensical at first. What it means is that no one has any information whatsoever that has predictive value. to the contrary They display the well-known characteristic known as cognitive dissonance. and hundreds of books An excellent history of these meanderings is Justin Fox’s book The Myth of the Rational Market. all the future earnings Interpreted as net value paid out or accumulated for the benefit of a sole owner. on inside information As chronicled by James Stewart in Den of Thieves, Connie Bruck in The Predators’ Ball, and others. this type profitably Tobias, Andrew, Money Angles, Simon and Schuster, New York, 1984, pp. 71–72.

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Bogle on Mutual Funds: New Perspectives for the Intelligent Investor. Burr Ridge, IL: Irwin, 1994. Edwardothorp.com. View articles written by the author. Feller, William. An Introduction to Probability Theory and Its Applications, Volume I. New York: Wiley, 1957, 1968. Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. New York: Harper Business, 2009. Griffin, Peter A. Introduction. The Theory of Blackjack: The Compleat Card Counter’s Guide to the Casino Game of 21. Las Vegas, NV: Huntington, 1995, 1999. Gross, William H. Bill Gross on Investing.

Adam Smith: Father of Economics by Jesse Norman

active measures, Alan Greenspan, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Cornelius Vanderbilt, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, electricity market, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial engineering, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Glass-Steagall Act, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, low interest rates, market bubble, market fundamentalism, Martin Wolf, means of production, mirror neurons, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, public intellectual, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

A highly readable overview of the history is Justin Fox, The Myth of the Rational Market, Harriman House 2009 Information incentives and efficient markets: see Sanford J. Grossman and Joseph E. Stiglitz, ‘On the Impossibility of Informationally Efficient Markets’, American Economic Review, 70.3, 1980 ‘There is no other proposition in economics which has more solid empirical evidence’: Michael Jensen, ‘Some Anomalous Evidence Regarding Market Efficiency’, Journal of Financial Economics, 6.2–3, 1978. Jensen’s views have since undergone considerable modification; see Fox, The Myth of the Rational Market, Ch. 15 ff. Slave trade and Scotland: the old view that Scotland had little to do with the slave trade has now been exploded.

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Riecken and Stanley Schachter, When Prophecy Fails, University of Minnesota Press 1956 Fleischaker, Samuel, On Adam Smith’s Wealth of Nations, Princeton University Press 2004 Folbre, Nancy, Greed, Lust and Gender: A History of Economic Ideas, Oxford University Press 2009 Force, Pierre, Self-Interest before Adam Smith: A Genealogy of Economic Science, Cambridge University Press 2003 Forman-Barzilai, Fonna, Adam Smith and the Circles of Sympathy, Cambridge University Press 2010 Foucault, Michel, The Order of Things: An Archaeology of the Human Sciences, repr. Routledge 2002 Fox, Justin, The Myth of the Rational Market, Harriman House 2009 Friedman, Milton, Essays in Positive Economics, University of Chicago Press 1953 Frydman, Roman and Michael D. Goldberg, Imperfect Knowledge Economics, Princeton University Press 2007 Galbraith, J. K., A History of Economics: The Past as the Present, Penguin 1989 Garber, Peter, Famous First Bubbles: The Fundamentals of Early Manias, MIT Press 2000 Gibbon, Edward, Memoirs of my Life, A.

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

The Myth of the Rational Market A History of Risk, Reward, and Delusion on Wall Street Justin Fox To Allison Contents Introduction: It had been Working So Exceptionally Well Early Days 1. Irving Fisher Loses his Briefcase, and Then his Fortune The first serious try to impose reason and science upon the market comes in the early decades of the twentieth century. It doesn’t work out so well. 2. A Random Walk from Fred Macaulay to Holbrook Working Statistics and mathematics begin to find their way into the economic mainstream in the 1930s, setting the stage for big changes to come.

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In the late 1920s, blinded in part by his own spectacular financial success, he became convinced that America’s masses of speculators and investors (not to mention its central bankers) were in fact following his advice. Nothing, therefore, could go wrong. Irving Fisher had succumbed to the myth of the rational market. It is a myth of great power—one that, much of the time, explains reality pretty well. But it is nonetheless a myth, an oversimplification that, when taken too literally, can lead to all sorts of trouble. Fisher was just the first in a line of distinguished scholars who saw reason and scientific order in the market and made fools of themselves on the basis of this conviction.

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Visit www.AuthorTracker.com for exclusive information on your favorite HarperCollins author. Credits Jacket design by Victor Mingovits Jacket illustration: The Stock Exchange by Rougeron-Vignerot, courtesy Bibliotheque des Arts Decoratifs, Paris, France/Archives Charmet/The Bridgeman Art Library Copyright THE MYTH OF THE RATIONAL MARKET. Copyright © 2009 by Justin Fox. All rights reserved under International and Pan-American Copyright Conventions. By payment of the required fees, you have been granted the non-exclusive, non-transferable right to access and read the text of this e-book on-screen. No part of this text may be reproduced, transmitted, down-loaded, decompiled, reverse engineered, or stored in or introduced into any information storage and retrieval system, in any form or by any means, whether electronic or mechanical, now known or hereinafter invented, without the express written permission of HarperCollins e-books.

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

Security Analysis: The Classic 1934 Edition. (New York: McGraw-Hill) 1996. 32. Ibid. 33. Edward Chancellor. Devil Take the Hindmost: A History of Financial Speculation (New York: Penguin Group) 2000. 34. Ibid. 35. Ibid. 36. Ibid. 37. Sobel, 1984. 38. Ibid. Trading in Glamour: The Conglomerate Era 117 39. Justin Fox. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. (New York: HarperCollins) 2009. 40. John. C. Bogle. “Statement of John C. Bogle to the United States Senate Governmental Affairs Subcommittee,” November 3, 2003. Available at http:// www.vanguard.com/bogle_site/sp20031103.html. 41.

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., 168 mean regression, 79–80 mean reversion finance and, 80–85 return on invested capital and, 69–74 mean-reverting qualitative elements, 31–33 Means, Gardiner, 4–5, 13, 17 MedImmune, 173 Meehl, Paul, 141 Mennella, Noelle, 186 Mesa Petroleum, 151–160 Miller, Frank J., 97 Mlodinow, Leonard, 110, 117 The Modern Corporation and Private Property, 17 Mohanty, Sunil, 26, 30, 34, 148 The Money Masters, 116 Montier, James, 26–28, 34, 59, 62, 75, 145, 149 Mooradian, Robert M., 186, 214 Munger, Charlie, 35–38, 41–43 Muscarella, Chris J., 168 The Myth of the Rational Market, 117 ownership problems, 22 Oxman, Jeffrey, 26, 30, 34, 148 N National Airlines, 12 net current asset value, 20 net current assets, 15, 189–191 net nets, 21 net operating profit after tax (NOPAT), 72–73 The New Financial Capitalists, 160–161, 168 New Zealand Stocks and Shares, 119–121, 167 Newberg, Bruce, 54, 75 Nicolais, Mike, 154 NOPAT.

Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, carbon tax, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, Glass-Steagall Act, global reserve currency, Global Witness, Golden arches theory, Great Leap Forward, greed is good, Greenspan put, Hernando de Soto, illegal immigration, income inequality, invisible hand, It's morning again in America, Jeff Bezos, laissez-faire capitalism, Live Aid, low interest rates, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, Nelson Mandela, offshore financial centre, Oklahoma City bombing, open borders, open economy, Peace of Westphalia, peak oil, pension reform, plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Savings and loan crisis, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, Timothy McVeigh, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game

Bob Woodward, Maestro (New York: Simon & Schuster, 2000). 2. Alan Greenspan, The Age of Turbulence: Adventures in a New World (London: Penguin, 2007), 97. Greenspan tells this story against himself in his autobiography. 3. Ibid., 40. 4. Ibid., 41. 5. Ibid., 52. 6. Ibid., 15. 7. Ibid., 179. 8. Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: HarperCollins, 2009), xii. 9. Greenspan, Age of Turbulence, 370. 10. Ibid., 199. 11. Fox, Myth of the Rational Market, xii. 12. Quoted in Gillian Tett, Fool’s Gold (London: Little, Brown, 2009), 36. 13. Greenspan, Age of Turbulence, 372. 14.

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The best thing to read on Alan Greenspan is Greenspan’s own surprisingly compulsive memoir, The Age of Turbulence: Adventures in a New World (Penguin, 2007). There have now been a great many books on the origins of the crash of 2008 and its economic lessons. Two of my favorites are Gillian Tett’s Fool’s Gold (Little, Brown, 2006) and Justin Fox’s The Myth of the Rational Market (HarperCollins, 2009). The defining text capturing the optimism generated by the interplay between the technological revolution and globalization is Thomas Friedman’s The World Is Flat (Penguin, 2005). The optimism about the rise of Asia during this period is caught both by Kishore Mahbubani’s The New Asian Hemisphere: The Irresistible Shift of Global Power to the East (PublicAffairs, 2008) and Martin Jacques’s When China Rules the World: The Rise of the Middle Kingdom and the End of the Western World (Penguin, 2009).

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

Inside,” The New York Times, October 10, 2009, available at http://www.nytimes.com/2009/10/11/business/11hohlt.html. 38. Pub. L. 96-221. Interest ceilings on deposit accounts were phased out in Title II. State usury laws were preempted in Title V. 39. Geisst, Wall Street, supra note 33, at 327. 40. On academic finance, see Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: Harper Business, 2009); John Cassidy, How Markets Fail: The Logic of Economic Calamities (New York: Farrar, Straus & Giroux, 2009), chapter 7; Peter Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street (New York: Free Press, 1992); and Peter Bernstein, Capital Ideas Evolving (Hoboken, NJ: Wiley, 2007). 41.

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The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History. New York: Broadway Business, 2009. Academic Economics and the Financial Crisis Cassidy, John. How Markets Fail: The Logic of Economic Calamities. New York: Farrar, Straus & Giroux, 2009. Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. New York: Harper Business, 2009. Economic and Policy Analyses Goodman, Peter S. Past Due: The End of Easy Money and the Renewal of the American Economy. New York: Henry Holt, 2009. Hacker, Jacob S., and Paul Pierson. Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class.

Creative Intelligence: Harnessing the Power to Create, Connect, and Inspire by Bruce Nussbaum

"World Economic Forum" Davos, 3D printing, Airbnb, Albert Einstein, Berlin Wall, Black Swan, Chuck Templeton: OpenTable:, clean water, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Danny Hillis, declining real wages, demographic dividend, disruptive innovation, Elon Musk, en.wikipedia.org, Eugene Fama: efficient market hypothesis, fail fast, Fall of the Berlin Wall, follow your passion, game design, gamification, gentrification, housing crisis, Hyman Minsky, industrial robot, invisible hand, James Dyson, Jane Jacobs, Jeff Bezos, jimmy wales, John Gruber, John Markoff, Joseph Schumpeter, Kevin Roose, Kickstarter, Larry Ellison, lone genius, longitudinal study, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, Max Levchin, Minsky moment, new economy, Paul Graham, Peter Thiel, QR code, race to the bottom, reality distortion field, reshoring, Richard Florida, Ronald Reagan, shareholder value, Sheryl Sandberg, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, SimCity, six sigma, Skype, SoftBank, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, Tesla Model S, The Chicago School, The Design of Experiments, the High Line, The Myth of the Rational Market, thinkpad, TikTok, Tim Cook: Apple, too big to fail, tulip mania, Tyler Cowen, We are the 99%, Y Combinator, young professional, Zipcar

This distinction forms a major theme in the course we co-teach at Parsons. Ray Ball, “The Global Financial Crisis and the Efficient Market Hypothesis: What Have We Learned?” University of Chicago, Journal of Applied Corporate Finance, vol. 21, no. 4, 2009; Siegel, “Efficient Market Theory and the Crisis”; Roger Lowenstein, “Book Review: The Myth of the Rational Market by Justin Fox,” Washington Post, June 7, 2009, accessed September 13, 2012, http://www.washingtonpost.com/wp-dyn/ content/article/2009/06/05/AR2009060502053.html. 228 “black swans”: Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (New York: Random House, 2007). 228 By excluding uncertainty: Frank H.

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id=5835269. 232 In a 2010 interview with Martin Wolf: Wolf and Giles, “Transcript: Larry Summers Interview.” 232 Summers was, after all: Stephen Labaton, “Congress Passes Wide-Ranging Bill Easing Bank Laws,” New York Times, November 5, 1999, accessed September 14, 2012, http://www.nytimes.com/1999/11/05/business/ congress-passes-wide-ranging-bill-easing-bank-laws.html; Charles Ferguson, “Larry Summers and the Subversion of Economics,” Chronicle of Higher Economics, October 3, 2010, accessed September 14, 2012, http://chronicle.com/article/Larry-Summersthe/124790/; Rana Foroohar, “Larry Summers: No Regrets on Deregulation,” Time Business, April 12, 2011, accessed September 14, 2012, http://business.time.com/2011/04/12/ larry-summers-no-regrets-on-deregulation/. 232 In 1999, Summers, along with: Cyrus Sanati, “10 Years Later, Looking at Repeal of Glass-Steagall,” DealBook, November 12, 2009, accessed September 14, 2012, http://dealbook.nytimes.com/2009/11/12/10 -years-later-looking-at-repeal-of-glass-steagall/. 232 the Depression-era regulation: Labaton, “Congress Passes Wide-Ranging Bill Easing Bank Laws.” 232 calling the repeal “historic”: Sanati, “10 Years Later.” 232 Perhaps no one believed: Justin Fox, “The Myth of the Rational Market,” Time, June 22, 2009, accessed September 14, 2012, http://www.time.com/time/magazine/ article/0,9171,1904153,00.html. 232 But in October 2008, Greenspan: Edmund L. Andrews, “Greenspan Concedes Error on Regulation,” New York Times, October 23, 2008, accessed September 14, 2012, http://www.nytimes.com/2008/10/24/ business/economy/24panel.html. 232 “Those of us who have looked: Kara Scannell and Sudeep Reddy, “Greenspan Admits Errors to Hostile House Panel,” Wall Street Journal, October 24, 2008, accessed September 14, 2012, http://online.wsj.com/article/ SB122476545437862295.html. 232 Greenspan was criticized: Andrews, “Greenspan Concedes Error on Regulation.” 233 Back in the mid-nineties: Katrina Brooker, “Citi’s Creator, Alone with His Regrets,” New York Times, January 2, 2012, accessed September 13, 2012, http://www.nytimes.com/2010/01/03/ business/economy/03weill.html. 233 On July 25, 2012: “Wall Street Legend Sandy Weill: Break Up the Big Banks,” CNBC Report, July 25, 2012, http://www.cnbc.com/id/48315170, accessed September 13, 2012. 233 from 1977 to 2008: Roger Martin, “The Age of Customer Capitalism,” Harvard Business Review, January 2010, http://hbr.org/2010/01/ the-age-of-customer-capitalism/ar/1. 233 Compare that with: Ibid. 234 In 2009, Michael Mandel: I’ve known and respected Mike Mandel for all the years we worked together at BusinessWeek and the years thereafter.

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, Cornelius Vanderbilt, corporate governance, Credit Default Swap, cross-subsidies, currency risk, dematerialisation, disinformation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, Ida Tarbell, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, it is difficult to get a man to understand something, when his salary depends on his not understanding it, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Jim Simons, John Meriwether, junk bonds, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, M-Pesa, market design, Mary Meeker, megaproject, Michael Milken, millennium bug, mittelstand, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, reality distortion field, regulatory arbitrage, Renaissance Technologies, rent control, risk free rate, risk tolerance, road to serfdom, Robert Shiller, Ronald Reagan, Schrödinger's Cat, seminal paper, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, vertical integration, Washington Consensus, We are the 99%, Yom Kippur War

., 1926, ‘Truth and Probability’, in Ramsey, F.P., 1931, The Foundations of Mathematics and Other Logical Essays, ed. Braithwaite, R.B., London, Kegan, Paul, Trench, Trubner & Co. 27. Buffett, W., 1988, Chairman’s Letter to the Shareholders of Berkshire Hathaway Inc. 28. Fox, J., 2009, The Myth of the Rational Market, New York, Harper Business, pp. 86–8. 29. Isaacson, W., 2013, Steve Jobs: The Exclusive Biography, New York, Little Brown. 30. Hair, P.E.H., 1971, ‘Deaths from Violence in Britain: A Tentative Survey’, Population Studies, 25 (1), pp. 5–24. 31. Adams, J., 1995, Risk: The Policy Implications of Risk Compensation and Plural Rationalities, London, Routledge. 32.

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House of Commons Treasury Committee, Independent Commission on Banking. Financial Times, 2009, ‘Government’s Response Like That of a Rowdy Drinker in a Bar Brawl’, 5 July. Fitzgerald, F.S., 1925, The Great Gatsby, New York, Charles Scribner’s Sons. Flyvberg, B., 2003, Megaprojects and Risk, Cambridge, Cambridge University Press. Fox, J., 2009, The Myth of the Rational Market, New York, Harper Business. Francis, J., 1850, ‘Chronicles and Characters of the Stock Exchange’, The Church of England Quarterly Review, 27 (6), pp. 128–55. Friedman, M., and Friedman, R.D., 1980, Free to Choose, San Diego, CA, Harcourt. Galbraith, J.K., 1954, The Great Crash, Boston, MA, Houghton Mifflin.

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

., A Companion to the History of Economic Thought (Oxford: Blackwell, 2003), 112-29; Alessandro Roncaglia, The Wealth of Ideas: A History of Economic Thought (Cambridge, U.K.: Cambridge University Press, 2005), 179-243, 278-96, 322-83. 40 Louis Bachelier: Louis Bachelier, “Théorie de la spéculation,” in Annales Scientifiques de l’École Normale Supérieure 3 (1900): 21-86; Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: Harper Business, 2009), 6-8. 40 “The consensus of judgment . . .”: Lawrence quoted in John Kenneth Galbraith, The Great Crash, 1929 (Boston: Houghton Mifflin, 1954), 75. 41 postwar academic departments: Fox, Myth of the Rational Market, 89-107. 41 “random walk” theory: Burton G.

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London: Centre for Economic Policy Research, 2009. Online at http://www.voxeu.org/index.php?q=node/3079. Ferguson, Niall. The Ascent of Money: A Financial History of the World. New York: Penguin Press, 2008. Fisher, Irving. “The Debt-Deflation Theory of Great Depressions.” Econometrica 1 (1933): 337-57. Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. New York: Harper Business, 2009. Frank, Nathaniel, and Heiko Hesse. “Financial Spillovers to Emerging Markets During the Global Financial Crisis.” IMF Working Paper no. 09/104, May 2009. Online at http://imf.org/external/pubs/ft/wp/2009/wp09104.pdf.

Pity the Billionaire: The Unexpected Resurgence of the American Right by Thomas Frank

Affordable Care Act / Obamacare, Alan Greenspan, bank run, Bear Stearns, big-box store, bonus culture, business cycle, carbon tax, classic study, collateralized debt obligation, collective bargaining, commoditize, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Deng Xiaoping, false flag, financial innovation, General Magic , Glass-Steagall Act, housing crisis, invisible hand, junk bonds, Kickstarter, low interest rates, money market fund, Naomi Klein, obamacare, Overton Window, payday loans, profit maximization, profit motive, road to serfdom, Robert Bork, Ronald Reagan, shareholder value, strikebreaker, The Chicago School, The Myth of the Rational Market, Thorstein Veblen, too big to fail, union organizing, Washington Consensus, white flight, Works Progress Administration

Just as readers of the thirties snapped up books trashing the great capitalists and picking apart classical economics, so did the book-buying public of our own time seem ready to read about the folly of orthodoxy. In 2009, a Time magazine columnist named Justin Fox scored an unlikely hit with The Myth of the Rational Market, a careful takedown of academic economics. Michael Lewis, who had once made heroes of tycoons, now walked readers through the descending levels of the Wall Street ripoff in The Big Short. And there was a sudden mania for Great Depression comparisons: Paul Krugman reissued his 1999 work, The Return of Depression Economics—this time they had truly returned—and a book about the blundering central bankers of the twenties actually made the bestseller list.

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

Available at www7.gsb.columbia.edu/alumni/news/hermes/print-archive/superinvestors. 17. Benjamin Graham, “Should Rich but Losing Corporations Be Liquidated?” Reprinted on Forbes.com, December 27, 1999. Available at http://www.forbes.com/forbes/1999/1227/6415410a.html. 18. Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: HarperBusiness, 2009). 19. Ibid. 20. Benjamin Graham, The Intelligent Investor: A Book of Practical Counsel, 4th ed. (New York: Harper & Row, 1986). 21. Warren Buffett, “Shareholder Letter,” Berkshire Hathaway, Inc.

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, deal flow, Deng Xiaoping, diversification, diversified portfolio, Dr. Strangelove, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, Great Leap Forward, guns versus butter model, high net worth, income inequality, interest rate derivative, it's over 9,000, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, power law, price mechanism, price stability, private sector deleveraging, proprietary trading, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, short squeeze, sovereign wealth fund, special drawing rights, special economic zone, subprime mortgage crisis, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, vertical integration, War on Poverty, Washington Consensus, zero-sum game

The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. New York: Public Affairs, 2011. Findlay, Ronald, and Kevin H. O’Rourke. Power and Plenty: Trade, War, and the World Economy in the Second Millennium. Princeton: Princeton University Press, 2007. Fox, Justin. The Myth of the Rational Market. New York: HarperCollins, 2009. Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press, 1963. Frydman, Roman, and Michael D. Goldberg. Imperfect Knowledge Economics: Exchange Rates and Risks. Princeton: Princeton University Press, 2007.

Why Aren't They Shouting?: A Banker’s Tale of Change, Computers and Perpetual Crisis by Kevin Rodgers

Alan Greenspan, algorithmic trading, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black-Scholes formula, buy and hold, buy low sell high, call centre, capital asset pricing model, collapse of Lehman Brothers, Credit Default Swap, currency peg, currency risk, diversification, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, fixed income, Flash crash, Francis Fukuyama: the end of history, Glass-Steagall Act, Hyman Minsky, implied volatility, index fund, interest rate derivative, interest rate swap, invisible hand, John Meriwether, latency arbitrage, law of one price, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, Minsky moment, money market fund, Myron Scholes, Northern Rock, Panopticon Jeremy Bentham, Ponzi scheme, prisoner's dilemma, proprietary trading, quantitative easing, race to the bottom, risk tolerance, risk-adjusted returns, Silicon Valley, systems thinking, technology bubble, The Myth of the Rational Market, The Wisdom of Crowds, Tobin tax, too big to fail, value at risk, vertical integration, Y2K, zero-coupon bond, zero-sum game

Chapter 8 1 ‘Forms and paradoxes of principles-based regulation’, Julia Black, Professor of Law and Research Associate, Centre for the Analysis of Risk and Regulation, London School of Economics and Political Science, Capital Markets Law Journal, 3/4, 10 September 2008, http://www.lse.ac.uk/collections/law/staff%20publications%20full%20text/black/forms%20and%20paradoxes%20of%20pbr%202008.pdf 2 The Age of Turbulence, Alan Greenspan, Penguin Books, 2008, p52. 3 ‘Testimony of Chairman Alan Greenspan, The regulation of OTC derivatives, Before the Committee on Banking and Financial Services, U.S. House of Representatives’, 24 July 1998, http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm 4 For more on this fascinating topic, see The Myth of the Rational Market, Justin Fox, Harper Business, 2011. 5 The End of History and the Last Man, Francis Fukuyama, Penguin Books, 1992. 6 ‘The Financial Crisis and the Role of Federal Regulators’, Committee on Oversight and Government Reform, House of Representatives, 23 October 2008, http://www.gpo.gov/fdsys/pkg/CHRG-110hhrg55764/html/CHRG-110hhrg55764.htm 7 Stabilizing an Unstable Economy, Professor Hyman Minsky, McGraw-Hill Professional, 1986. 8 ‘Working Paper No. 74, The Financial Instability Hypothesis’, Hyman Minsky, The Jerome Levy Economics Institute of Bard College, May 1992, http://www.levyinstitute.org/pubs/wp74.pdf 9 Unsettled Account: The Evolution of Banking in the Industrialised World since 1800, Richard S.

Unfinished Business by Tamim Bayoumi

Alan Greenspan, algorithmic trading, Asian financial crisis, bank run, banking crisis, Basel III, battle of ideas, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, buy and hold, capital controls, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, currency peg, Doha Development Round, facts on the ground, Fall of the Berlin Wall, financial deregulation, floating exchange rates, full employment, Glass-Steagall Act, Greenspan put, hiring and firing, housing crisis, inflation targeting, junk bonds, Just-in-time delivery, Kenneth Rogoff, liberal capitalism, light touch regulation, London Interbank Offered Rate, Long Term Capital Management, market bubble, Martin Wolf, moral hazard, oil shale / tar sands, oil shock, price stability, prisoner's dilemma, profit maximization, quantitative easing, race to the bottom, random walk, reserve currency, Robert Shiller, Rubik’s Cube, Savings and loan crisis, savings glut, technology bubble, The Great Moderation, The Myth of the Rational Market, the payments system, The Wisdom of Crowds, too big to fail, trade liberalization, transaction costs, value at risk

Fiordelisi (2009): Franco Fiordelisi, Mergers and Acquisitions in European Banking, Palgrave Macmillan Studies in Banking and Financial Institutions, Palgrave Macmillan, London and New York, 2009. Focarelli and Pozzolo (2001): Dario Focarelli and Alberto Pozzolo, “The Patterns of Cross-Border Bank Mergers and Shareholdings in OECD Countries”, Journal of Banking and Finance, Vol. 25, No. 12 (December 2001), pp. 2305–37. Fox (2009): Justin Fox, The Myth of the Rational Market, Harper Business, New York, 2009. Friedman (2006): Benjamin M. Friedman, The Moral Consequences of Economic Growth, Alfred Knopf, New York, 2006. Gagnon (2012): Joseph Gagnon, “European Monetary Unification: Precocious or Premature?”, Chapter 10 in Jacob Funk Kirkegaard, Nicolas Véron, and Guntram B.

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

Alan Greenspan, Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Apollo 11, Asian financial crisis, bank run, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, coastline paradox / Richardson effect, collateralized debt obligation, collective bargaining, currency risk, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Financial Modelers Manifesto, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, Jim Simons, John Nash: game theory, junk bonds, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Market Wizards by Jack D. Schwager, martingale, Michael Milken, military-industrial complex, Myron Scholes, Neil Armstrong, new economy, Nixon triggered the end of the Bretton Woods system, Paul Lévy, Paul Samuelson, power law, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk free rate, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, Stuart Kauffman, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

Hoboken, NJ: John Wiley and Sons. Forbes magazine. 2011. “The World’s Billionaires 2011.” Available at http://www.forbes.com/lists/2011/10/billionaires_2011.html. Forfar, David O. 2007. “Fischer Black.” Available at http://www.history.mcs.standrews.ac.uk/Biographies/Black_Fischer.html. Fox, Justin. 2009. The Myth of the Rational Market. New York: Harper Business. French, Craig W. 2003. “The Treynor Capital Asset Pricing Model.” Journal of Investment Management 1 (2): 60–72. Galison, Peter. 1997. Image and Logic: A Material Culture of Microphysics. Chicago: University of Chicago Press. — — — . 2003. Einstein’s Clocks, Poincaré’s Maps: Empires of Time.

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

Andrew Haldane, “Why Banks Failed the Stress Test,” (speech at the Marcus-Evans Conference on Stress-Testing, London, February 9–10, 2009). 28. Three recent books have done a great job of showing us how the ideas that constitute modern finance, its theoretical structure, were a huge part of what went wrong. Justin Fox’s The Myth of the Rational Market (2009), John Cassidy’s How Markets Fail (2009), and John Quiggin’s Zombie Economics (2010) lay out in great detail how the economic theory of the past thirty years was constructed, what it presumed about the world, and why those ideas failed in the 2007–2008 crisis. In what follows, I draw on their work and on my own prior work on the subject.

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, book value, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial engineering, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Japanese asset price bubble, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, margin call, market bubble, Mary Meeker, money market fund, mortgage tax deduction, new economy, Own Your Own Home, PalmPilot, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stock buybacks, stocks for the long run, sugar pill, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

Critics believe that such events stretch the credibility of the efficient-market theory beyond the breaking point. The financial press has been unambiguous in its judgment. The Wall Street Journal opined that the efficient-market theory was a “remarkable error.” BusinessWeek described the theory as a “failure.” Justin Fox of Time, author of The Myth of the Rational Market, claimed that the efficient-market hypothesis (EMH) has deluded investors and played a major role in the worldwide credit crisis of 2008–09. Certainly the behavioral theorists, whose work was described in chapter 10, are highly skeptical that markets are efficient. The behavioralists chide their efficient-market brethren for blindly accepting that the stock market behaves rationally.

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

accounting loophole / creative accounting, affirmative action, Alan Greenspan, An Inconvenient Truth, bank run, banking crisis, behavioural economics, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, carbon tax, Cass Sunstein, central bank independence, classic study, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, general purpose technology, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Paradox of Choice, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Robert Solow, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, social contagion, South Sea Bubble, Steven Pinker, tacit knowledge, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, the strength of weak ties, Tragedy of the Commons, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, vertical integration, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

“You Don’t Need to Sell a Million to Make a Mint.” Sunday Times (London), 8 November. Ehrlich, Paul. 1968. The Population Bomb. New York: Ballantine. Financial Times. 2009. “India Opts for Voluntary Cuts on Emissions.” Fitzgerald, F. Scott. 1925. The Great Gatsby. New York, Scribner’s. Fox, Justin. 2010. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. New York: HarperCollins. Frank, Robert. 1999. Luxury Fever: Money and Happiness in an Era of Excess. New York: Free Press. Frank, Robert. 2007. “Why Not Shift the Burden to Big Spenders?” New York Times, 7 October. Frank, Robert, and Philip Cook. 1995.

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

Of particular interest is his 2003 book, The Roaring Nineties, since this shows the pervasiveness of imperfect information, and how deregulation created the wrong incentive structure that led to the scandals and the bubble economy of the 1990s. The lessons still haven’t been learnt. Justin Fox’s book, The Myth of the Rational Market: A history of risk, reward, and delusion on Wall Street (2009) is an entertaining account of the rise of the efficient market hypothesis and its ultimate failure. Addendum: what about the efficiency of asset markets? One way to summarize the content of mainstream textbooks is this: if all markets existed, and were perfectly competitive, the economy would be in a Pareto optimal situation – it wouldn’t be possible to make anyone better off without making someone else worse off.

Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, behavioural economics, Black Swan, Blue Ocean Strategy, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, Cornelius Vanderbilt, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, disinformation, Dr. Strangelove, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, escalation ladder, Ford Model T, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, Herbert Marcuse, Herman Kahn, Ida Tarbell, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, scientific management, seminal paper, shareholder value, social contagion, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, Twitter Arab Spring, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, W. E. B. Du Bois, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

Kathleen Eisenhardt, “Agency Theory: An Assessment and Review,” Academy of Management Review 14, no. 1 (1989): 57–74. 2. Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: Harper, 2009), 159–162. 3. Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3 (1976): 302–360. 4. Michael C. Jensen, “Organization Theory and Methodology,” The Accounting Review 58, no. 2 (April 1983): 319–339. 5. Jensen, “Takeovers: Folklore and Science,” Harvard Business Review (November–December 1984), 109–121. 6. Cited by Fox, The Myth of the Rational Market, 274. 7. Paul M.

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

“Hindsight ≠ Foresight: The Effect of Outcome Knowledge on Judgment Under Uncertainty.” Journal of Experimental Psychology: Human Perception and Performance 1, no. 3: 288. Fisher, Irving. 1930. The Theory of Interest: As Determined by Impatience to Spend Income and Opportunity to Invest It. New York: MacMillan. Fox, Justin. 2009. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. New York: HarperCollins. Frank, Robert H., Thomas Gilovich, and Dennis T. Regan. 1993. “Does Studying Economics Inhibit Cooperation?” Journal of Economic Perspectives 7, no. 2: 159–71. Frederick, Shane, George Loewenstein, and Ted O’Donoghue. 2002.

Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown, Eric Kim

Abraham Wald, activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, Asian financial crisis, Atul Gawande, backtesting, Basel III, Bayesian statistics, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Black Swan, book value, business cycle, capital asset pricing model, carbon tax, central bank independence, Checklist Manifesto, corporate governance, creative destruction, credit crunch, Credit Default Swap, currency risk, disintermediation, distributed generation, diversification, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, experimental subject, fail fast, fear index, financial engineering, financial innovation, global macro, illegal immigration, implied volatility, independent contractor, index fund, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market clearing, market fundamentalism, market microstructure, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, natural language processing, open economy, Pierre-Simon Laplace, power law, pre–internet, proprietary trading, quantitative trading / quantitative finance, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, shareholder value, Sharpe ratio, special drawing rights, statistical arbitrage, stochastic volatility, stock buybacks, stocks for the long run, tail risk, The Myth of the Rational Market, Thomas Bayes, too big to fail, transaction costs, value at risk, yield curve

For the twentieth and twenty-first centuries we have The New Lombard Street: How the Fed Became the Dealer of Last Resort by Perry Mehrling, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System by Barry Eichengreen, Capital Ideas: The Improbable Origins of Modern Wall Street by Peter Bernstein, The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor by Ron Chernow, The Greed Merchants: How the Investment Banks Played the Free Market Game by Philip Augar, and The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox. The bible of advantage gamblers is James Grosjean’s Beyond Counting: Exploiting Casino Games from Blackjack to Video Poker. Peter Griffin was one of the best mathematician/gamblers. He wrote The Theory of Blackjack: The Compleat Card Counter’s Guide to the Casino Game of 21.

Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

"World Economic Forum" Davos, Airbnb, Alan Greenspan, Albert Einstein, algorithmic management, algorithmic trading, Arthur D. Levinson, barriers to entry, behavioural economics, cloud computing, collaborative economy, commoditize, confounding variable, corporate governance, crony capitalism, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, deep learning, demand response, Didi Chuxing, digital capitalism, disintermediation, disruptive innovation, double helix, Downton Abbey, driverless car, electricity market, Erik Brynjolfsson, Evgeny Morozov, experimental economics, Firefox, framing effect, Google Chrome, independent contractor, index arbitrage, information asymmetry, interest rate derivative, Internet of things, invisible hand, Jean Tirole, John Markoff, Joseph Schumpeter, Kenneth Arrow, light touch regulation, linked data, loss aversion, Lyft, Mark Zuckerberg, market clearing, market friction, Milgram experiment, multi-sided market, natural language processing, Network effects, new economy, nowcasting, offshore financial centre, pattern recognition, power law, prediction markets, price discrimination, price elasticity of demand, price stability, profit maximization, profit motive, race to the bottom, rent-seeking, Richard Thaler, ride hailing / ride sharing, road to serfdom, Robert Bork, Ronald Reagan, search costs, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, smart meter, Snapchat, social graph, Steve Jobs, sunk-cost fallacy, supply-chain management, telemarketer, The Chicago School, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Travis Kalanick, turn-by-turn navigation, two-sided market, Uber and Lyft, Uber for X, uber lyft, vertical integration, Watson beat the top human players on Jeopardy!, women in the workforce, yield management

See, for example, Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978); Richard A. Posner, “The Chicago School of Antitrust Analysis,” University of Pennsylvania Law Review 127 (1978): 925, 933. 9. Posner, “The Chicago School of Antitrust Analysis.” 10. Justin Fox, The Myth of the Rational Market (New York: Harper Business/ HarperCollins, 2009), 89–107. 11. As President Reagan told the nation, “government is not the solution to our problem; government is the problem”; Ronald Reagan, First Inaugural Address (January 20, 1981), http://www.reaganlibrary.com/reagan/speeches /first.asp. 12.

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

., 415 F.3d 620, 623 (7th Cir. 2005). 24.A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 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.

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

Rickards, ‘The Risks of Financial Modeling: VaR and the Economic Meltdown’, testimony before the Subcommittee on Investigations and Oversight Committee on Science and Technology, US House of Representatives, 10 September 2009. 38 Benoit Mandelbrot (2008) The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin and Reward, Profile Books. For another interesting example of cross-fertilisation, see Didier Sornette (2003) Why Stockmarkets Crash: Critical Events in Complex Financial Systems, Princeton University Press. 39 See Justin Fox (2009) The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, HarperBusiness. 40 The following example is paraphrased from Baseline Scenario: http://baselinescenario.com/2009/10/01/the-economics-of-models/. 41 Gillian Tett (2009) Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe, Little, Brown. 42 Lucien Bebchuk and Jesse Fried (2004) Pay without Performance: The Unfulfilled Promise of Executive Compensation, Harvard University Press. 43 Lucian Bebchuk and Holger Spamann (2009) ‘Regulating Bankers’ Pay’, Harvard Law and Economics Discussion Paper No. 641. 44 Jesse Eisinger, ‘London Banks, Falling Down’, Portfolio, 13 August 2008, at http://www.portfolio.com/views/columns/wall-street/2008/08/13/Problemsin-British-Banking-System/. 45 Philip Augar (2009) Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City’s Golden Decade, The Bodley Head. 46 Albert-Laszlo Baraasi (2002) Linked: The New Science of Networks, Basic Books.

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, Alan Greenspan, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, full employment, Glass-Steagall Act, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, Les Trente Glorieuses, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, proprietary trading, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, vertical integration, very high income, winner-take-all economy, zero-sum game

‘The Debt-Deflation Theory of Great Depressions’, Econometrica, vol. 1, no. 4 (October 1933), pp. 337–57. http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf. Forstater, Matthew. Functional Finance and Full Employment: Lessons from Lerner for Today’, Working Paper No. 272, The Jerome Levy Economics Institute, July 1999. Fox, Justin. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: HarperCollins, 2009). Frank, Robert H. and Philip J. Cook. The Winner-Take-All Society: Why the Few at the Top Get So Much More than the Rest of Us (London and New York: Penguin, 1996). Frydman, Roman and Michael D. Goldberg.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

Journal of Financial Economics 5, no. 2: 115–46. Fenner, Elizabeth. 2013. “12 Questions for Nobel Prize Winner Eugene Fama.” Chicago Magazine, December 10, http://www.chicagomag.com/Chicago-Magazine/December-2013/Q-and-A-with-University-of-Chicago-Economist-Eugene-Fama/. Fox, Justin. 2009. The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street. New York: HarperCollins. French, Craig W. 2003. “The Treynor Capital Asset Pricing Model.” Journal of Investment Management 1: 60–72. Friedman, Milton. 1976. “Milton Friedman—Biographical.” The Nobel Foundation, https://www.nobelprize.org/prizes/economic-sciences/1976/friedman/biographical/.

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, “Information and Competitive Price Systems,” American Economic Review 66, no. 2 (May 1976): 246–53; and Sanford Grossman and J. E. Stiglitz, “On the Impossibility of Informationally Efficient Markets,” American Economic Review 70, no. 3 (June 1980): 393–408. 37. See Justin Fox, The Myth of the Rational Market (New York: Harper Business, 2009). 38. This was equivalent to a loss of more than a trillion dollars. The stocks of eight major companies in the S&P 500 (including Accenture) fell to one cent per share; the prices of other stocks (including Sotheby’s, Apple, and Hewlett-Packard) increased to over $100,000.

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

Rubin was saying we couldn’t do it.” For a retrospective on the debate, see Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled the Recovery (New York: Simon and Schuster, 2012). 38. “Over-the-Counter Derivatives,” Senate Committee on Agriculture, Nutrition and Forestry, July 30, 1998. 39. Justin Fox, The Myth of the Rational Market (New York: HarperCollins, 2009), 197. Summers can also claim credit for perhaps the second-best takedown of the efficient markets crowd: a 1984 presentation in which he described finance theory as akin to believing that the ketchup market operated under different rules than the rest of the world.

Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-border payments, currency peg, currency risk, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

Many are by journalists, including Gillian Tett, who wrote Fool’s Gold: How Unrestrained Greed Corrupted a Dream, Shattered Global Markets, and Unleashed a Catastrophe. Andrew Ross Sorkin brought out Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System – and Themselves. Roger Lowenstein authored The End of Wall Street, Justin Fox wrote The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, and Scott Patterson produced The Quants; How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It. The theme of market irrationality is also explored in John Cassidy’s How Markets Fail; The Logic of Economic Calamities.

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

“It’s impossible to disseminate information exactly homogeneously,” Steinhardt says of the regulators’ efforts. Steinhardt interview, September 10, 2007. 48. Anise C. Wallace, “Pullback at Block Trading Desks,” New York Times, December 24, 1987, p. D1. 49. Dan Dorfman, “Sabbatical for a Superstar,” Esquire, August 29, 1978, p. 12. CHAPTER THREE: PAUL SAMUELSON’S SECRET 1. Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, (New York: HarperCollins, 2009), p. 124. 2. Peter L. Bernstein, Capital Ideas Evolving (Hoboken, NJ: John Wiley & Sons, 2007), p. 113. 3. Samuelson explains, “Fama’s theory of the random walk and mine are not the same. Mine is that there are no easy pickings….

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

Figelman, Ilya (2007), “Stock return momentum and reversal,” Journal of Portfolio Management 34(1), 51–67. Figelman, Ilya (2008), “Expected return and risk of covered call strategies,” Journal of Portfolio Management 34(4), 81–97. Foresi, Silverio; and Lauren Wu (2005), “CrashOPhobia: A domestic fear or a worldwide concern?” Journal of Derivatives 13(2), 8–21. Fox, Justin (2009), The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street, HarperBusiness. Francis, Jack Clark; and Roger G. Ibbotson (2009), “Contrasting real estate with comparable investments, 1978 to 2008,” Journal of Portfolio Management 36(1), 141–155. Franzoni, Francesco A.; Eric Nowak; and Ludovic Phalippou (2010), “Private equity and liquidity risk,” Swiss Finance Institute working paper.

Corporate Finance: Theory and Practice by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann le Fur, Antonio Salvi

"Friedman doctrine" OR "shareholder theory", accelerated depreciation, accounting loophole / creative accounting, active measures, activist fund / activist shareholder / activist investor, AOL-Time Warner, ASML, asset light, bank run, barriers to entry, Basel III, Bear Stearns, Benoit Mandelbrot, bitcoin, Black Swan, Black-Scholes formula, blockchain, book value, business climate, business cycle, buy and hold, buy low sell high, capital asset pricing model, carried interest, collective bargaining, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, currency risk, delta neutral, dematerialisation, discounted cash flows, discrete time, disintermediation, diversification, diversified portfolio, Dutch auction, electricity market, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, German hyperinflation, Glass-Steagall Act, high net worth, impact investing, implied volatility, information asymmetry, intangible asset, interest rate swap, Internet of things, inventory management, invisible hand, joint-stock company, joint-stock limited liability company, junk bonds, Kickstarter, lateral thinking, London Interbank Offered Rate, low interest rates, mandelbrot fractal, margin call, means of production, money market fund, moral hazard, Myron Scholes, new economy, New Journalism, Northern Rock, performance metric, Potemkin village, quantitative trading / quantitative finance, random walk, Right to Buy, risk free rate, risk/return, shareholder value, short selling, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, stocks for the long run, supply-chain management, survivorship bias, The Myth of the Rational Market, time value of money, too big to fail, transaction costs, value at risk, vertical integration, volatility arbitrage, volatility smile, yield curve, zero-coupon bond, zero-sum game

The affirmative case, Financial Analysts Journal, 57(3), 15–29, May–June 2001. For more about empirical evidence and anomalies of efficient financial markets: R. Banz, The relationship between return and market value of common stock, Journal of Financial Economics, 9(1), 3–18, March 1981. J. Fox, The Myth of the Rational Market, Harper Business, 2009. M. Gibbons, H. Patrick, Day of the week effects and asset returns, Journal of Business, 54(4), 579–596, October 1981. D. Keim, Size-related anomalies and stock return seasonality: Further empirical evidence, Journal of Financial Economics, 12(1), 13–32, June 1983.