The Myth of the Rational Market

A History of Risk, Reward, and Delusion on Wall Street

hard cover, 408 pages

English language

Published Jan. 1, 2009 by HarperCollins.

ISBN:
978-0-06-059899-0
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4 stars (4 reviews)

How a simple observation - different people assign different values to the same thing - turned into a mass delusion - the market, particularly the stock market, is rational (correct) and efficient (quick) - among people who should have known better.

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Review of 'The Myth of the Rational Market' on 'Goodreads'

4 stars

While I think John Cassidy's [b:How Markets Fail: The Logic of Economic Calamities|6691186|How Markets Fail The Logic of Economic Calamities|John Cassidy|https://images.gr-assets.com/books/1442955895s/6691186.jpg|6886629] is more accessible, this book definitely covers more ground. I think anyone planning on reading this book, though, might do better to start with [b:The Undoing Project: A Friendship That Changed Our Minds|30334134|The Undoing Project A Friendship That Changed Our Minds|Michael Lewis|https://images.gr-assets.com/books/1464874845s/30334134.jpg|50830817] by Michael Lewis, because an understanding of Prospect Theory and Behavioral Economics would go a long way to understanding why the Efficient Market Hypothesis is based on false premises (the biggest false premise being the belief in rational actors). While the Efficient Market Hypothesis is an important and usable model for equities, and this book does make sure to emphasize that, it is a limited model that is not always correct. In fact, when it is wrong, it is very wrong. In the end, attempts to beat …

Review of 'The Myth of the Rational Market' on 'Goodreads'

3 stars

Essentially a history of 20th century financial economics, centered around the question: Does the market always get asset prices right with respect to their underling values? If not, can one profit on this? The basic answer is that the market can be very wrong (as evidenced by bubbles), but good luck making any short term cash out of that fact. Always interesting to see the process of ideas over time.

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4 stars