"Justin Fox’s Myth of the Rational Market brilliantly tells the story of how that edifice [of the American financial system] was built — and why so few were willing to acknowledge that it was a house built on sand. [...] Instead of focusing on the errors and abuses of the bankers, Fox [...] tells the story of the professors who enabled those abuses under the banner of the financial theory known as the efficient-market hypothesis. Fox’s book is not an idle exercise in intellectual history, which makes it a must-read for anyone who wants to understand the mess we’re in. Wall Street bought the ideas of the efficient-market theorists, in many cases literally: professors were lavishly paid to design complex financial strategies. And these strategies played a crucial role in the catastrophe that has now overtaken the world economy. [...] One of the great things about Fox’s writing is that he brings to it a real understanding of the sociology of the academic world. Above all, he gets the way in which one’s career, reputation, even sense of self-worth can end up being defined by a particular intellectual approach, so that supporters of the approach start to resemble fervent political activists — or members of a cult. [...] In this sense, efficient-market acolytes were like any other academic movement. But unlike, say, deconstructionist literary theorists, finance professors had an enormous impact on the business world — and, not incidentally, some of them made a lot of money in the process."

"The book is a masterfully documented and engaging history of the rise and the fall of the efficient market hypothesis (EMH). [...] From its earliest characterisation, the powerful and mathematically eloquent theory of EMH has developed into a broader set of conclusions. Fox describes how EMH progressed from the observation that stock price movements were random, to the claim that it was impossible to predict stock prices and, finally, to the conviction that ‘stock prices were in some fundamental sense right’ (p. xiv). [...] Economists as well as professional investors will find the Myth of the Rational Market an enjoyable, stimulating and worthwhile read. Undergraduate or graduate students, particularly business and economics majors enrolled in a History of Economic Thought or Personal Finance course, will take pleasure in reading this fascinating and very thoroughly documented story [...]. The beauty of the book is that Fox has integrated a great deal of economic and finance theory into a summary of the contributions by many of the key contributors of the past century. He not only discusses their academic contributions, he cleverly infuses interesting personal anecdotes along the way. [...] The Myth provides some worthwhile insights for students of economics. [...] While mathematics provides a very useful tool, it is no more powerful than the assumptions that form the basis for its application. In classroom instruction, economists use assumptions not because they are always accurate representations of reality, but because they help students grasp the underlying logic of a situation. However, in the real world of financial markets, invalid assumptions sometimes generate dramatic failures. [...] Without realising it, students will be immersed in a story that generates an appreciation and better understanding of the scientific method – another reason to adopt this book in a college economics or finance course. Mr. Fox goes beyond merely discussing the basic logic of the models by addressing the personal attachment that many of those involved (understandably) acquire toward the theories they were instrumental in developing. It is hard to change one’s position once a reputation and career have been built upon it."

"In his conclusion, he attempts to relate the behavioral critique to Keynes’s analysis and to Hyman Minsky’s theory of crises. However, his interpretation of Keynes and Minsky emphasizes their recognition of the psychological inaccuracy of models that assume rational behavior; the book says a lot about decision-making, but nothing about structures. Minsky, though, believed that competition would force firms to adopt financial structures that were increasingly unstable, and that this would occur even if agents were rational. In addition, the book pays no attention to what financial markets actually do; Fox presumes that all they do is allocate funds for investment, and try to evaluate risk. He does not even consider the possibility that the function of financial markets might not be to enable the efficient allocation of resources, but to operate principally as a device for promoting capital concentration and surplus extraction, and the fact that their very structure limits the ability of agents (even rational ones) to choose the most efficient alternative is not even considered. If one believes Fox’s story, bubbles are irrational and not particularly useful. Yet, the historical record seems to indicate that bubbles have consistently led to increased concentration of capital and facilitated the amplified reproduction of the economy (e.g. railroads were built and financed by bubbles). Modern finance theory has little to say about the issue, and so does this book."

"In Myth, respected editor and columnist Fox pits two heavyweight adversaries against each other: creators and adherents of the rational market versus their skeptical behavioral finance opponents. Scholars from many fields have produced a slew of recent books on individual and market rationality. Of those, Animal Spirits, by George Akerloff and Robert Shiller (CH, Jul'09, 46-6301), and The Irrational Economist, ed. by Erwann Michel-Kerjan and Paul Slovic (CH, May'10, 47-5135), are the closest to this book by virtue of their main focus--macroeconomics and risk management, respectively. But Fox's volume, with its tantalizing chronological exploration of the eggheads and practitioners (from Irving Fisher and Paul Samuelson to Gene Fama, Fisher Black, Robert Shiller, Warren Buffett, and Alan Greenspan) and ideas (random walks, the efficient market hypothesis, portfolio and option pricing) will bring smiles and tears to readers' faces and should be a required complement for anyone interested in these debates. Given that Fox is quite objective, this reviewer's only quibble is with the title: Myths and Realities ..." might have been more descriptively accurate, but then the book would have sold less well, perhaps adding emphasis to those who believe in well-informed, rational decision makers. Summing Up: Highly recommended. General readers; students, upper-division undergraduate and up; researchers; professionals."