Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts

of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org

where you can subscribe, find other episodes, comment on this podcast, and find links to

another information related to today's conversation. Our email address is mailadicontalk.org. We'd

love to hear from you. Today is June 18th, 2009, and my guest is Justin Fox, columnist and

blogger for Time Magazine, and author of, The Myth of the Rational Market, a History of

Risk, Reward, and Delusion on Wall Street. Justin, welcome to Econ Talk.

Thank you for having me.

Your book is a History of Risk, Reward, and Delusion on Wall Street, but it's also an ambitious

intellectual history. A history of how economists and finance scholars have tried to use the tools

of economics and statistics to understand finance and the stock market. And one of the highlights

of that intellectual history is the claim that markets are efficient or rational. They're

different versions of that claim. What have they been, and where do we stand with respect

to those?

Well, in the taxonomy that was developed at the University of Chicago starting in the

mid-60s, they talked about weak form efficiency, semi-strong efficiency, and strong efficiency.

And those were all about the kind of information you were using to try to beat the market. And

it started with weak form, which was just the claim that if you looked at past movements

of the stock market or of a particular stock's price, that that wouldn't tell you anything

helpful about the future movement.

Semi-strong was any publicly available information about a company, what you read in the Wall

Street Journal or on CNBC, not a fan CNBC back then, but you get the idea that that wouldn't

...