Book Review: Justin Fox, The Myth of the Rational Market

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4 Responses

  1. A.J. Sutter says:

    Thanks for the useful review. No disrespect, especially to you personally, but do you really think that law professors have wrought “similar change,” in terms of impact on the real world, to academic finance departments? Yes, impact on the legal academy and perhaps to some areas of substantive law, as you mention. (Though I’d be interested to know how much of that is due to direct academic influence, e.g. in drafting legislation or regs, and how much of it is due to litigators’ picking up the prevailing winds from the finance world directly, and opportunistically finding law review articles to cite.) But I don’t think the legal academy’s role in this matter has touched the lives of every American, much less everyone in the world, the way that the finance academy’s activities have.

    Which other books touching on the crisis do you recommend? Janet Tavakoli’s Structured Finance & Collateralized Debt Obligations, 2d ed.(2008), remains my own favorite to date, both for the technical explanations of the instruments and her withering descriptions of financial culture. George Cooper’s The Origin of Financial Crises (2008) is interesting especially from the central banking side of the picture, and his critique of the EMH. More on the legal side, though not exclusively about finance or corporations, La gouvernance (2003) by Philippe Moreau Defarges in the Que sais-je series is a very sober critique of the idea of governance generally. And Rawi Abdelal’s Capital Rules (2007) describes the 1980-1990s history of the international regulations liberalizing cross-border capital movements and the hitherto ignored role of French Socialists therein (though this last is a pretty dry read, IMHO).

  2. Frank Pasquale says:

    Great review of a terrific book. I completely agree with it. I also recommend Fox’s podcasts (he’s appeared on Russ Roberts’s EconTalk, as well as several other venues). He does a great job explaining the concepts at the heart of the book.

  3. Lawrence Cunningham says:

    A.J. and Frank: thanks for the kind words.

    On A.J.’s (1) by “similar change” (and “parallel” story) I meant in the same direction not so much order of magnitude and (2) of the books you mention, I’ve studied Cooper’s carefully and regard it highly (perhaps it warrants a brief review that I’ll provide if time permits).