Efficient Markets R.I.P.

I never bought into that old staple of my Finance 101 Classes at Berkeley: The Efficient Markets Hypothesis. A new book sees the current financial crisis as the ultimate repudiation of that theory which is pretty much taught as gospel at most business schools.

In the words of a somewhat famous man, "I'd be a bum on the street with a tin cup if the markets were always efficient."

Far better to start by acknowledging that markets, like the people that constitute them, have many inefficiencies, starting with the cognitive biases of the participants. This is the central insight of Behavioral Finance, incidentally my favorite class at Cal.