By then, mainstream academic economists had long ago lost faith in market rationality, at least in its purest form. Especially after two of their number, Myron Scholes and Robert Merton, both Nobel laureates, lost their shirts when Long-Term Capital Management, a hedge fund based on their rational-market ideas, blew up in 1998. Indeed, the focus of academic finance has been shifting for at least 20 years towards theories that address the ways in which markets behave irrationally. To use John Maynard Keynes's phrase, the market participants who in recent years bet trillions on these new efficient-market-inspired financial products were "slaves to some defunct economist".

The only disappointment about "The Myth of the Rational Market" is that it does not say more about how the ideas that shape financial markets will change in response to this catastrophic intellectual failure. But Mr Fox has written a worthy successor to "Capital Ideas", the late Peter Bernstein's 1990s classic on the emergence of the rational-market myth: bang up-to-date; alas, without the happy ending.

© The Economist Newspaper Limited 2009