A new, evolutionary explanation of markets and investor behavior

Half
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―and as financial bubbles, crashes, and
crises suggest. This is one of the biggest debates in economics and the
value or futility of investment management and financial regulation hang
on the outcome. In this groundbreaking book, Andrew Lo cuts through
this debate with a new framework, the Adaptive Markets Hypothesis, in
which rationality and irrationality coexist.

Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, Adaptive Markets
shows that the theory of market efficiency isn't wrong but merely
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.

A fascinating intellectual journey filled with compelling stories, Adaptive Markets
starts with the origins of market efficiency and its failures, turns to
the foundations of investor behavior, and concludes with practical
implications―including how hedge funds have become the Galápagos Islands
of finance, what really happened in the 2008 meltdown, and how we might
avoid future crises.An ambitious new answer to fundamental questions in economics, Adaptive Markets is essential reading for anyone who wants to know how markets really work.