In this Book

  • Beyond Mechanical Markets: Asset Price Swings, Risk, and the Role of the State
  • Book
  • Roman Frydman & Michael D. Goldberg
  • 2011
  • Published by: Princeton University Press
buy this book Buy This Book in Print
summary

A powerful challenge to contemporary economics and a new agenda for global finance

In the wake of the global financial crisis that began in 2007, faith in the rationality of markets has lost ground to a new faith in their irrationality. The problem, Roman Frydman and Michael Goldberg argue, is that both the rational and behavioral theories of the market rest on the same fatal assumption—that markets act mechanically and economic change is fully predictable. In Beyond Mechanical Markets, Frydman and Goldberg show how the failure to abandon this assumption hinders our understanding of how markets work, why price swings help allocate capital to worthy companies, and what role government can and can't play.

The financial crisis, Frydman and Goldberg argue, was made more likely, if not inevitable, by contemporary economic theory, yet its core tenets remain unchanged today. In response, the authors show how imperfect knowledge economics, an approach they pioneered, provides a better understanding of markets and the financial crisis. Frydman and Goldberg deliver a withering critique of the widely accepted view that the boom in equity prices that ended in 2007 was a bubble fueled by herd psychology. They argue, instead, that price swings are driven by individuals' ever-imperfect interpretations of the significance of economic fundamentals for future prices and risk. Because swings are at the heart of a dynamic economy, reforms should aim only to curb their excesses.

Showing why we are being dangerously led astray by thinking of markets as predictably rational or irrational, Beyond Mechanical Markets presents a powerful challenge to conventional economic wisdom that we can't afford to ignore.

Table of Contents

restricted access Download Full Book
  1. Cover
  2. restricted access
    • Download PDF Download
  1. Title Page, Copyright, Dedication
  2. pp. iii-v
  3. restricted access
    • Download PDF Download
  1. Table of Contents
  2. pp. vii-xi
  3. restricted access
    • Download PDF Download
  1. Acknowledgments
  2. pp. xiii-xv
  3. restricted access
    • Download PDF Download
  1. What Went Wrong and What We Can Do about It
  2. pp. 1-18
  3. restricted access
    • Download PDF Download
  1. PART I. The Critique
  1. 1. The Invention of Mechanical Markets
  2. pp. 21-40
  3. restricted access
    • Download PDF Download
  1. 2. The Folly of Fully Predetermined History
  2. pp. 41-54
  3. restricted access
    • Download PDF Download
  1. 3. The Orwellian World of “Rational Expectations”
  2. pp. 55-70
  3. restricted access
    • Download PDF Download
  1. 4. The Figment of the “Rational Market”
  2. pp. 71-80
  3. restricted access
    • Download PDF Download
  1. 5. Castles in the Air:The Efficient Market Hypothesis
  2. pp. 81-102
  3. restricted access
    • Download PDF Download
  1. 6. The Fable of Price Swings as Bubbles
  2. pp. 103-114
  3. restricted access
    • Download PDF Download
  1. PART II. An Alternative
  1. 7. Keynes and Fundamentals
  2. pp. 117-148
  3. restricted access
    • Download PDF Download
  1. 8. Speculation and the Allocative Performance of Financial Markets
  2. pp. 149-162
  3. restricted access
    • Download PDF Download
  1. 9. Fundamentals and Psychology in Price Swings
  2. pp. 163-174
  3. restricted access
    • Download PDF Download
  1. 10. Bounded Instability:Linking Risk and Asset-Price Swings
  2. pp. 175-194
  3. restricted access
    • Download PDF Download
  1. 11. Contingency and Markets
  2. pp. 195-216
  3. restricted access
    • Download PDF Download
  1. 12. Restoring the Market-State Balance
  2. pp. 217-248
  3. restricted access
    • Download PDF Download
  1. Epilogue
  2. pp. 249-256
  3. restricted access
    • Download PDF Download
  1. References
  2. pp. 257-272
  3. restricted access
    • Download PDF Download
  1. Index
  2. pp. 273-285
  3. restricted access
    • Download PDF Download
Back To Top

This website uses cookies to ensure you get the best experience on our website. Without cookies your experience may not be seamless.