Should You Be Assigning The Myth of the Rational Market To Your Class?

Tomorrow, I'll look more at a particular aspect of the The Mythof the Rational Market.  Today I want to look at the big picture, which I will do by asking whether this intellectual history of a scholarly movement - one almost entirely composed of economists, as Matt and Lynn's posts have observed - belongs in academic articles and on syllabi.  It's a great account, and certainly synopsizes the right people.  I could see it working very well at Wharton, particularly in a non-required, paper-oriented course.  Moreover, because I'm a fun loving guy, I recently listened to Robert Shiller's basic finance lectures at Yale, and many of the economists covered in the course - Holbrook Working, Modigliani, Fama and French, &c - are in the book, so it could be the right kind of supplement for hardworking students in survey courses too. 

The book is focused on finance.  We don't get too much of "Fama lifts weights every day," or "Merton Miller never did stop talking about the enormous marlin that got away from him and Hemingway off of Cuba."  I actually like those stories, and find that they help me to keep straight the arguments between the weights guy and the distance running guy, or whatever.  And so while no one wants cute overload, my personal taste for cute was not met by the book - though, that's also a reason why the book works in an academic context.

What about the method?  Well, you have to buy into the concept of intellectual history in the first place, but one of IH's huge methodological problems, selection bias, is mitigated by Fox's very large (to my mind, quite comprehensive) cast of characters.  I think there's a patina of Thomas Kuhn's Structure of Scientific Revolutions here, which is discussed most on pp.203-05.  Finance got quantitative and rationalist in an effort to understand an important phenomenon that many market participants - the scientists working under the old paradigm - were getting exactly wrong by speculating, following charts, and possibly even value-investing.  Many low hanging fruit were picked.  And now, Fox concludes, we're still in the world of Ptolemean epicycles, given that the first thing that all behavorial economists say is that markets work.  Here's his winning summation: "The creator of the efficient market hypothesis no longer believed that prices were right, while some of the efficient market's fiercest critics found themselves teaching in the classroom that ... prices were right" (p. 300).  I'd like the book even better if we had an even stronger sense of what they external forces that drove the turn to rationality in the first place, and its takeover.  Was it science envy?  Soemthing technocratic about the 20th century?  The usual expert conspiracy against the laity?  If Fox has a view, I think he held it close, which makes the book difficult to sum up in a bumper sticker, if that sort of thing is to your taste.