Brain food: The theory that destroyed the banks | Science | The Guardian

Brain food: The theory that destroyed the banks | Science | The Guardian: "Today we will examine an idea that provokes fights between economists and City-types – and which can help you make money .........As Alan Greenspan, former head of the US central bank, said last year: 'The whole intellectual edifice collapsed.' And the cornerstone of that edifice was the efficient-markets hypothesis (EMH).

The basic concepts were codified in 1969 by a 30-year-old Chicago economist called Eugene Fama. .......... Fama believed investors couldn't beat the market, since all known facts and opinion about a company were instantly reflected in its share price. ... fully priced assets were traded by rational people acting in their self-interest, so it followed that the market price was correct.

This was a huge break from earlier thinking. In 1936, amid the Great Depression, John Maynard Keynes had likened investing to a beauty contest, ...the theory worked better than the messy reality. ....... So The Price Can Be Wrong. Trouble is, economists do not have a handy substitute narrative.

.... It implies that most of us are better off stowing our savings in a cheap fund that tracks the stock market, rather than with some expensive smarty-pants fund manager. There you go, an idea from economics that might save you money: who'd have thought it?"

Here is the beginning of my post. And here is the rest of it.