Paving Wall Street : Experimental Economics and the Quest for the Perfect Market (Hardcover)

~ (Author), Vernon L. Smith (Foreword) "On a typical Monday, the floor of the New York Stock Exchange is a beehive of activity from the opening bell at 9:30 in the..." (more)
Key Phrases: second circuit breaker, option valuation theory, double oral auction, Wall Street, United States, Black Monday (more...)

Editorial Reviews

Review

"The best account of all of the new developments so far has just appeared. ''Paving Wall Street: Experimental Economics & the Quest for the Perfect Market,'' by Ross M. Miller, moves far beyond Peter Bernstein's two classic volumes, ''Capital Ideas'' and ''Against the Odds.''

For many years the author headed General Electric's Quantitative Finance Group. He weaves together developments in finance, game theory, and experimental economics to give a clear and up-to-date picture of rocket science as it is applied at the highest levels on Wall Street." (The Boston Globe)

Product Description

Praise for Paving Wall Street

"This is a remarkable book that weaves the deep scientific roots of modern finance and modern financial institutions with humorous perspective and considerable wisdom. Few understand the pervasive and complex economic principles that govern our world of finance. Few are aware of the academic and scientific origins of financial practices and market instruments that are commonplace today. Ross Miller uses his experience and talents acquired as an experimental economist to help us understand a world that is contradictory, potentially dangerous, and paradoxical. He entertains us while doing it." —Charles R. Plott, Edward S. Harkness Professor of Economics and Political Science, California Institute of Technology

"Decisions by millions of individuals produce the fierce tides and churning seas of Wall Street. Miller wields his microscope in the laboratory of experimental economics to provide a sprightly and insightful analysis of investor behavior." —Richard Zeckhauser, Frank P. Ramsey Professor of Political Economy, John F. Kennedy School of Government, Harvard University

"Dramatic new ways for buying and selling–spectrum auctions, e-commerce, derivatives–are the economics professions contribution to the Information Revolution. This book explains how many of these innovations began with simple experiments at Caltech. The style is a refreshing combination–dramatic and fun to read, but also historically and scientifically accurate. So, I can send one to my Dad, a salesman, and another to my girlfriend, a patent attorney." —Colin Camerer, Rea and Lela Axline Professor of Business Economics, California Institute of Technology

"Paving Wall Street is a first-rate insight into bubbles and the experimental research performed on the topic by leading academicians such as Vernon Smith." —David Dreman, Chairman, Dreman Value Management

"Academic ideas have revolutionized how Wall Street operates. Entirely new markets have been created. This revolution continues today, accelerated by the rise of increasingly automated markets. Ross Miller has produced a book that makes the leading-edge financial and economic thinking that shapes these new markets accessible to practitioners and professionals. With no equations and a deft touch, this is an excellent guide to the future of greater Wall Street." —David J. Leinweber, PhD, Economics/Social Sciences, California Institute of Technology

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Product Details

• Hardcover: 336 pages
• Publisher: Wiley; 1 edition (January 2002)
• Language: English
• ISBN-10: 0471121983
• ISBN-13: 978-0471121985
• Product Dimensions: 9.3 x 6.3 x 1.1 inches
• Shipping Weight: 1.8 pounds (View shipping rates and policies)
• Average Customer Review: 4.8 out of 5 stars  See all reviews (4 customer reviews)
• Amazon.com Sales Rank: #1,249,654 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

4 of 4 people found the following review helpful:

5.0 out of 5 stars Useful, June 7, 2005

By	C. Kurdas (Brooklyn, NY United States) - See all my reviews (REAL NAME)

This review is from: Experimental Economics: How We Can Build Better Financial Markets (Paperback)

Miller provides in-depth insight into past financial market events and by doing so sheds light on what might happen today on several fronts. Three examples: His discussion of the 1998 Long-Term Capital Management debacle is relevant for understanding current risks in hedge funds. His analysis of 1980s portfolio insurance should add to concerns about the proliferation of capital guaranteed notes. His take on market circuit breakers, which he describes as regulatory folly, raises the question of what would happen today if these were triggered.

While the book reviews a large and varied body of academic research, focusing heavily on the experimental economics that the author subscribes to, it offers practical conclusions that anybody interested in finance will find worthwhile. As a financial journalist, I found it very useful.

However, because it covers a lot of ground, readers may want to pick and choose what they want to read from the index. The chapter and section headings, while entertaining, are not good guides for this purpose.

4 of 5 people found the following review helpful:

5.0 out of 5 stars Mentions an article of mine in endnotes, February 7, 2003

By A Customer

But that's not my only reason for thinking this a great book.

Ross M. Miller makes three large claims here. I think he makes good on the first two. I'm not so sure about the third, but even there he makes a case that needs to be made.

First, he explains that one branch of economics has become an experimental science.

Second, he says that this variant of economics has produced important results - theorems disclosing how markets might best be structured or restructured, and how the privatization of now-public goods might be accomplished, in ways that could produce enormous productivity gains.

He more pessimistically claims though, thirdly, that these theorems probably won't produce such gains, because in doing so they would hurt politically powerful interests.

The idea of "experimental economics" is simple enough: a college professor need only ask his students to co-operate in a simple auction-based game, so that he (and they) can observe the process by which prices come into existence under simplified conditions. Once a body of observations has developed, he and other experimenters can vary the rules and conditions of the game and observe the effect the changes have upon the trading strategies of the players and the game outcomes.

It was at Harvard University, in the 1940s, that such experiments got their start, in the classroom of Professor Edward Chamberlain. In the decades since, a body of observations has developed that in some respects supports neoclassical economic theory, but that in one crucial respect calls for its modification. Neoclassical theory needs to be modified to account for the possibility of irrational price bubbles. What is of greater policy importance, though, is that post-Chamberlainian experiments have given us a good idea of how markets can be structured to prevent bubble formation.

4 of 7 people found the following review helpful:

5.0 out of 5 stars Where it's at in economics today, February 6, 2002

By A Customer

About 1975, when Ross Miller and I were grad students in economics, there was a consensus "economic view of the world." Economists who had to deal with the real world -- policy makers and development types -- didn't really believe it, but the mainstream did. Not only believed it, but took it for granted.

That's not true today. The consensus is fragmenting. If you want to understand the underpinnings of this intellectual shift, read Ross's book. It's written clearly, even excitingly, with well-chosen examples. And it is written by a real economist, who's trying to understand what's right and what's wrong about how we think about the economic world.