BEYOND MECHANICAL MARKETS

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 this book they 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.

Frydman and Goldberg show how imperfect knowledge economics, an approach they pioneered, provides a better understanding of markets and the financial crisis. They 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. This is a powerful challenge to conventional economic wisdom that we can't afford to ignore.

Roman Frydman is professor of economics at New York University.
Michael D. Goldberg is the Roland H. O'Neal Professor at the University of New Hampshire.

"Beyond Mechanical Markets gives us a doctor's prescription for dampening - and possibly even avoiding altogether - the next economic crisis." - George A. Akerlof, Nobel Laureate in Economics

"This book is a milestone. It breaks important new ground in the refoundation that macroeconomics and finance so badly need. The authors' rereading of Keynes will come as a revelation both to Keynesians and behavioralists ." -Edmund S. Phelps, Nobel Laureate in Economics

JENSEITS RATIONALER MaeRKTE
Die Neue Marktwirtschaft nach Keynes und Hayek
Deutsch von Andreas Schieberle
[HC: Wiley 04/2012]