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The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street Hardcover – June 9, 2009
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From Publishers Weekly
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
“Justin Fox is a truly insightful fellow who can see things with his own eyes—a rare, very rare attribute.” (Nassim Nicholas Taleb, author of The Black Swan)
“A fascinating historical narrative.” (Roger Lowenstein, The Washington Post)
“This wise and witty book is must reading for anyone who wonders what makes financial markets tick. Even those who have wrestled with this question for years will be glad to have read Fox’s compelling history.” (Peter Bernstein, author of Against the Gods: The Remarkable Story of Risk)
“His analysis is singularly compelling, and the rare business history that reads like a thriller... A must-read for anyone interested in the markets, our economy or government, this dense but spellbinding work brings modern finance and economics to life.” (Publishers Weekly (starred review))
“A lucid, lively and learned account.” (Barron's)
“Fox makes business history thrilling.” (St. Louis Post-Dispatch)
“Impressively broad and richly researched.” (Financial Times)
“...a rich history of the world’s most seductive investing idea...the book chronicles the rise of rational market theory over the decades and captures the sizzle and pop of the intellectual debate ...” (Bloomberg)
“Good wonky fun.” (Barry Ritholz, The Big Picture blog)
“An intellectual tour-de-force...” (The Economist)
“Superbly accurate and readable... Clearly the result of many years of research and reading,... it is a model of what the popularization of social science can be, but too rarely is, and it will continue to be read when the current crisis is many years behind us.” (American Scientist)
“A tough, tasty steak of a book.” (Dan Neil, Los Angeles Times)
“A thoughtful, often fascinating, always illuminating history of the idea of market rationality.” (Cory Doctorow, boingboing.net)
Top Customer Reviews
Saying that people are irrational and the market is irrational is of course now all the rage. But, if you think you can romp your way to financial security by taming your animal spirits and feeding off the market's irrationality, I assure you, and Justin Fox assures you, that such is not the case. "While behaviorists and other critics have poked a lot of holes in the edifice of rational market finance, they haven't been willing to abandon that edifice." (p. 301). The reason is that the edifice is usually correct, although it can experience spectacular failures. The problem is that we don't know when it will experience these failures. We do know, or at least I strongly believe, that the failures are due to herd behavior of investors, which undermines the applicability of the normal statistical distribution, the mainstay of traditional financial theory.
The theory that financial markets are rational is called the Efficient Markets theory. It has two parts.Read more ›
Fox's book is organized primarily by ideas and then chronologically. This can lead to jarring jumps between time periods within chapters and the reader suspects that important topics are being missed. The twelve-page epilogue for example begins in 1833 and is in the 1960's by the turn of the page.
The mathematics discussed in the book is not terribly complicated but the reader is given no formulas, no graphs, no applications of the quantitative theories. Yes, everyone knows what normal distribution looks like but the power laws discussed deserve a chart. Mandelbrot's fractal theories need a diagram. Fox would also support his argument more strongly if he included the formulas which were eventually altered by the behavioralists. Without these, the reader is forced to blindly trust what Fox is telling him.
Despite these minor criticisms, the book is definitely worth reading. I am guessing that the title attracts many readers who hope financial-economics moves beyond the Chicago School efficient-markets framework. If this is what readers want, I recommend Beinhocker's "The Origin of Wealth." If you want a quick tour of academic financial thought, read Fox.
This isn't to say there weren't entertaining and educational parts. Justin Fox does a nice job in bringing the complex topics of efficient market theory, option-pricing models and CAPMs down to a layman's level. His research is impeccable and he highlights all the major players; Black, Fisher, Friedman, Keynes, Modigliani and Buffett, as well as a large cast of supporting players. Fox does a much better job, in my opinion however, with more "modern" economic figures than with the "founding fathers". His discussion of Mac McQuown's work at Wells Fargo to develop index-based mutual funds helped shed light for me on modern banking methods, and I now understand Michael Milken and the concept of junk bonds much better than before.
In both the "Early Days" section and the "Rise of the Rational Market" section, I felt like I was trying to drink from Niagara Falls with the deluge of names, places and theories. Without some kind of a personal reference to dates and eras, I felt all of the information simply washed over me.Read more ›
Most Recent Customer Reviews
Good but somewhat dated overview of modern finance told in an entertaining manner.Published 6 months ago by Max Henke
The book got off to a good start, but bogged down quickly. By page 50, all I could wonder was why so many PhD's had been awarded in the field of Economics for theses that were so... Read morePublished 7 months ago by Gregory A. Pittner
A book that could only be written by a genious.
No wonder that it took so many years to complete , jeopardizing the relationship of the author with several of his bosses and... Read more
This book is a must for anyone who wants an insight into why the economists have been responsible for almost every financial crisis the we have had to suffer - particularly... Read morePublished 13 months ago by Amazon Customer
A phenomenal, addicting, bracing account of the personalities and pitfalls of a science that is truly dismal. Read morePublished 14 months ago by David Siegel
A fantastic read for all those interested in history of rational market finance.Published 19 months ago by Himanshu kapoor
Frankly, I did not read the book. What I have read was the interview with Mr Justin Fox on the Marketplace web site. Read morePublished on April 30, 2014 by Pessakh Eugene Mayburd
Excellent exposition that draws together some otherwise disconnected concepts that you were probably taught in Eco 101 at university. Recommended.Published on March 17, 2014 by Shane Delphine
Clearly, this author did his homework and presents a fascinating background/history of Wall Street. At times, it was a little hard to keep all of the players/dates in order but, at... Read morePublished on March 2, 2014 by S. Kercheval