Cosma Shalizi in American Scientist:
The Myth of the Rational Market, by Justin Fox, is an account—popular but thorough—of the roots, rise, triumph and ongoing fall of the theory of efficient markets in finance. This school of thought is an exemplary specimen of a type of social science that flourished after World War II: It has mathematical models at its center, has supposedly been empirically validated by statistical analyses, is indifferent to history and to institutions, and takes as an axiom that people are intelligent, farsighted and greedy. Unlike many economic theories, the efficient-market school has been influential beyond academia. It helped reshape ideas about how companies should be run, how executives should be paid, and indeed how the economy should be regulated (or not) to promote the general welfare. (In comic-book form: A mild-mannered social science by day, at night efficient-market theory puts on a cloak of ideology and struggles for the Capitalist Way.) The theory contributed, arguably, to setting up the crisis that has gripped the world economy since 2007. Its story is of much more than just scholarly interest.
The founding principles of efficient-market theory are easily described…