Overview

A new, evolutionary explanation of markets and investor behaviorHalf of all Americans have money in the stock market, yet economists can't agree on whether investors and markets are rational and efficient, as modern financial theory assumes, or irrational and inefficient, as behavioral economists believe. The debate is one of the biggest in economics, and the value or futility of investment management and financial regulation hangs on the answer. In this groundbreaking book, Andrew Lo transforms the debate with a powerful new framework in which rationality and irrationality coexist-the Adaptive Markets Hypothesis. Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, Adaptive Markets shows that the theory of market efficiency is incomplete. When markets are unstable, investors react instinctively, creating inefficiencies for others to exploit. Lo's new paradigm explains how financial evolution shapes behavior and markets at the speed of thought-a fact revealed by swings between stability and crisis, profit and loss, and innovation and regulation. An ambitious new answer to fundamental questions about economics and investing, Adaptive Markets is essential reading for anyone who wants to understand how markets really work.

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9780691191362

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Reviews

[A] remarkable new book. . . . [Lo's] insights should allow investors and regulators alike to manage risks better. They should read it. --John Authers, Financial Times A convincing argument. --The Economist A fascinating read, cogently situating financial behaviour within what we know about human behaviour and evolutionary history. --Diane Coyle, Nature Lo's book offers a unique way to think about the idea of 'efficient markets'--a new hypothesis worth considering about how markets can be rational and irrational at the same time. --Andrew Ross Sorkin, New York Times

A fascinating read, cogently situating financial behaviour within what we know about human behaviour and evolutionary history. --Diane Coyle, Nature [A] remarkable new book. . . . [Lo's] insights should allow investors and regulators alike to manage risks better. They should read it. --John Authers, Financial Times A convincing argument. --The Economist Lo's book offers a unique way to think about the idea of 'efficient markets'--a new hypothesis worth considering about how markets can be rational and irrational at the same time. --Andrew Ross Sorkin, New York Times

oeA convincing argument. The Economist oeA fascinating read, cogently situating financial behaviour within what we know about human behaviour and evolutionary history. Diane Coyle, Nature oeLo (TM)s book offers a unique way to think about the idea of ~efficient markets (TM) a new hypothesis worth considering about how markets can be rational and irrational at the same time. Andrew Ross Sorkin, New York Times oe[A] remarkable new book. . . . [Lo (TM)s] insights should allow investors and regulators alike to manage risks better. They should read it. John Authers, Financial Times

A fascinating read, cogently situating financial behaviour within what we know about human behaviour and evolutionary history. -Diane Coyle, Nature [A] remarkable new book. . . . [Lo's] insights should allow investors and regulators alike to manage risks better. They should read it. -John Authers, Financial Times A convincing argument. -The Economist Lo's book offers a unique way to think about the idea of `efficient markets'-a new hypothesis worth considering about how markets can be rational and irrational at the same time. -Andrew Ross Sorkin, New York Times

A fascinating read, cogently situating financial behaviour within what we know about human behaviour and evolutionary history. --Diane Coyle, Nature A convincing argument. --The Economist Lo's book offers a unique way to think about the idea of 'efficient markets'--a new hypothesis worth considering about how markets can be rational and irrational at the same time. --Andrew Ross Sorkin, New York Times [A] remarkable new book. . . . [Lo's] insights should allow investors and regulators alike to manage risks better. They should read it. --John Authers, Financial Times

Author Information

Andrew W. Lo is the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. He is the author of Hedge Funds and the coauthor of A Non-Random Walk Down Wall Street (both Princeton), among other books.

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