《市场是理性的吗?》
作者：贾斯廷．福克斯（Justin Fox） 芝加哥大学的法马(Fama)还在讲授市场理性发展的理论。但是他的同事们对此逐渐怀疑起来 :买入然后持有，分散投资，把钱放入指数基金。将注意力放在你可以控制的事情上：成本，尽量压低成本。这些话今天听上去是相当标准的投资建议，但常常不被遵循。 40 年前这可是具有革命意义的。这场革命始于大学校园，更确切地说是芝加哥大学的校园，而其名称听上去却缺乏革命特色，被称做“效率市场”（efficient markets）。
“在一个有效率的市场，”芝加哥大学教授尤金．法马（Eugene Fama）在美国金融协会（American Finance Association）1969 年年会上发表的一篇划时代的论文中写道。“价格‘充分反映’已知信息。就是说，在一个有效率的市场，除非你有内幕消息，否则你不能战胜市场。所以为什麽要白费力气呢？”
那番话的一个符合逻辑的结果是，指数基金的创立。指数基金并不指望超过标准普尔500 指数和 Wilshire 5000 小股票指数，但希望能够达到它们的效果。今天这类基金占美国股市 10% 的市值以及今年进入股票共同基金的个人投资的 60% 的份额。但是成千上万的小投资者仍然漠视从效率市场理论中得到的启示，倾向于进行股票交易 或是大笔进出共同基金，以求获得幻想中的超过市场的回报。（但在此同时把大量的钱浪废在共同基金的管理费和佣金中。）
同时，在大学校园，新一代的金融教授则彻底抛弃了法马的观点。这一批新生代学者的所信奉的原则不是效率市场，而是行为金融学。行为金融学认为，股票市场的投资人是非理性的，未来股票价格起码可以部分地依据过去的行为加以预测，对于过去的趋势和财务报表的仔细研究能够让人获益。而这一观点恰恰与大多数投资者对市场的观点相吻合。
现在，我们带您回顾这场学术争论。这是《财富》一年一度的投资者指南专题，而不是“高等教育编年史”，所以如果我们认为这对几年来受到股市伤害的投资者人无关的话，我们就没有必要来说这个故事。
行为金融学家给投资者的信息是：你真的可以战胜市场。但因为跟行为学密切相关的一些原因，你几乎无法做到这一点。因此他们提的建议和效率市场学者们的是一样的。但只有这一次，我们可能会听进去。 必须要指出的是，尤金．法马对这一切毫不认同。这是寒冷、天色发灰的芝加哥秋季的一天，但法马却穿了一件颜色亮丽的短袖衬衫，显示这位 63 岁的金融教授可能是星球上最耐寒的一个人了。虽然他有生之年叁分之二的时间都呆在芝加哥，他说话仍然略带波士顿口音，他认为行为金融学不过是学术界的垃圾而已。“我不知道他们和新奇的玩艺有多大差别，”法马谈到行为金融学的研究时说，“他们有很多有意思的新奇玩艺。”
多年来，法马对于这种对所谓“新奇玩艺”的追寻还是非常宽容的。与他在芝加哥大学长期共事的同僚默顿．米勒（Merton Miller）不同，米勒认为行为学家的研究是从意识形态上对自由市场的攻击（米勒于 2000 年去世），法马一直主张经验主义研究，甚至包括那些显示出市场看似并非无效的研究。在 1991 年他写的 1969 年“效率资本市场”的着名论文的续篇中，法马承认现实要比他和效率市场理论家想象的混乱得多，尽管不至于混乱到他的理论无法解释的程度。
1997 年，法马还写了另外一篇论文。他说很多行为学家声称发现的市场的不规则现象是由于糟糕的统计数据造成的，行为学家试图建立一套相对效率市场假设的理论的结果迄今为止是“令人尴尬的”。这篇论文一石激起千层浪，直到 10 月华盛顿的枪手将“多名受害者公开遭枪杀”送到新闻榜榜首以前，这篇文章一直是学术界的权威的社会科学研究网（Social Science Research Network）六年来被下载最多的一篇文章。法马认为用行为金融学来评价效率市场理论，这一点没有错。但把它作为替代品将会导致灾难。“如果你把行为金融学真的当回事，那我不知道资产定价会变成什麽？”他说。“如果您认为价格是不正确的，你告诉我资金的成本是多少？”
我们待会再谈这个问题。但首先让我们考察一下行为学家们的胜利。今年诺贝尔经济学奖的一半授予了他们的保护使者，普林斯顿大学心理学家丹尼尔．卡内曼（DanielKahneman）[另一半给了 George Mason 大学的弗农．史密斯（Vernon Smith，他的经济试验也找出了效率市场理论的漏洞）。还有两年一度的美国经济学会 John BatesClark 奖（授予美国 40 岁以下最重要的经济学家），1999 年和 2001 年都被行为学家获得。在大众文化领域，耶鲁大学队效率市场怀疑论者罗伯特．席勒（Robert Shiller）2000 年的畅销书《非理性繁荣》（Irrational Exuberance）是几年来经济学家着作中被最经常提及的一本。
也许，最戏剧性的是，正对着法马在芝加哥大学商学院办公室楼下的房间现在已属于57 岁的行为学创始人理查德．塔勒尔（Richard Thaler）。去年一篇杂志专访说塔勒尔又矮又胖，这成了学生们的笑柄，但这有失公平。他不是一个像法马这样的运动健将，他在网球场上是法马的手下败将。塔勒尔在康奈尔大学相对自由的学术圈呆了几年后在 1995 年来到芝加哥大学，现在他似乎已经取代了法马的地位，成为这家金融研究领域最具影响力的商学院中最重要的一位教员。
几十年来，芝加哥大学一直是那些确信市场永远正确的人的神殿。塔勒尔的这一段智力征程其实是在罗切斯特大学发展到几乎荒谬的地步。“我记得我的教授们叫着说，‘这个价格是对的！这个价格是对的！'”在塔勒尔离开罗切斯特后不久来到的原达特默斯大学（Dartmouth）的金融教授肯尼思．弗伦克（Kenneth French）说。“这看上去就像一场愚蠢的电视智力竞赛。”
罗切斯特大学反映的，不仅仅是金融这一分支，而是整个经济学走向的一个极端事例。认为人类可以解释经济活动，理性的个人试图将财富最大化的说法至少可以追溯到18 世纪，从苏格兰人亚当．斯密（Adam Smith）开始，而且经济学家早在 1870 年就提出数学是最适合的表达方式。但是这种做法真正开始有影响是在 1947 年，麻省理工学院教授保罗．萨缪尔森（Paul Samuelson）发表了《经济分析基础》（Foundationsof Economic Analyses）的论文，用牛顿微积分的语言重铸经济学原理。经济学数学化来到后，把原先的一些学说全部一扫而空。原来的经济学学术界曾经是百家争鸣的园地，但不过几十年的功夫，大学里就只剩下建立在人类理性这一假说上的数学模型了。 这些模型当中最有威力、也是跟实际生活数据最为吻合的，要数效率市场假说(EMH)。这一理论建立在实证基础上，显示除非因为公司盈利上升而进入上升通道，股票价格是随意波动的。萨缪尔森在 1965 年最先对此进行了理论解释，之后法马等人又加以阐述（法马 1964 年获芝加哥大学博士学位），他们的说法是股票价格随意波动是因为所有有关一只股票的已知信息已经包含在股价中。也就是说，股价只会因为消息而波动，而消息，不言而喻，是无法预测的。
" 我记得教授们叫着说，‘这个价格是对的！这个价格是对的！' 这几乎到了荒谬的地步。" ─肯尼思．弗伦克说
这一价格波动观点要成立，市场必须表现出理性。这并不意味每一位投资人都必须理性，只要假定一群不理性的投资人是在不同的方面不理性，他们的非理性就能够互相抵消。如果这一点不成立，也就在这里这个理论开始摇摆不定，理性投资人就可以利用市场短暂的非理性突然赚得一大笔钱，然后把价格又推回应该在的位置。
这又把我们带回到塔勒尔那里。1970 年初他在罗切斯特大学攻读经济学博士学位。他的博士论文通过了解有多少人愿意在危险的行当比如采矿和砍伐工作，试图给人的生命标价。当然他的假设是，当人们做出接受一份工作的时候，已经理性地估计到了死亡的可能性。
塔勒尔问了几个朋友，为了排除千分之一的死亡概率他们愿意付多少钱，另外，多少钱能使他们愿意接受额外的千分之一的死亡风险。他发现，人们不愿意多花钱获得额外的生命保障，但是要求极多的钱财愿意接受额外的风险，此举严格来说显示人们并非理性。“这些回答让我得出两个结论，”塔勒尔几年后写道。“1. 如果我想要毕业的话，最好回过头去在计算上下功夫。2. 买价和卖价之间的差异非常有趣。”
塔勒尔的确将他这一有颠覆性的想法和几个信任的同事和行外的朋友进行了讨论。其中有一位正好是一个刚毕业的心理学博士，他寄给塔勒尔一篇以色列心理学教授阿莫斯．特韦尔斯基（Amos Tversky）和丹尼尔．卡内曼（Daniel Kahneman）1974 年写的文章（特韦尔斯基 1996 年去世，如果他仍然健在，肯定会分享今年的诺贝尔奖）。论文的结论是，人们在做概率和风险的决定时，依靠的是大脑中的捷径，虽然“非常经济而且经常是富有效率的，但......带来系统性和可预见的错误。”
最后这一部分才是关键。人们判断会有误并非新闻，但如果这些错误是“系统的而且可预见的”，那麽善于做方程式的经济学家必须好好考虑这一问题。（而且投资就是做有关概率和风险的决定，尽管塔勒尔那时候还没有真正看到这一点。）当特韦尔斯基和卡内曼 1978 年在斯坦福大学做访问学者的时候，塔勒尔想做一个短期的研究，但最后呆了 15 个月。他在经济学领域阐述特韦尔斯基和卡内曼的思想方面起到了重要作用。
经济学界一开始的反映并非十分积极。但是几年后，塔勒尔的理论逐渐有了几位支持者。有些人是同样对心理学感兴趣的经济学家，还有几位是擅长计算的金融教授，他们对一些看来非理性的市场行为感到迷惑不解，比如市场在新年最初几周会短暂上扬的“一月效应”（在人们就这一现象发表文章不久以后，这一现象又消失了），以及一些股价相对公司价值不高的“价值”股超越市场表现的现象。怀疑论者的人数在整个 80 年代有所增加了，但相对来说仍然只是边缘理论。
与此同时，效率市场论者不仅占领了学术界的主流而且还进入了华尔街。不难感到意外的是，华尔街最初的反应是敌对的。教授们所说的是归根结蒂就是那些高收入的基金经理和分析师一钱不值。一些教授揭示说，在 1960 年一个着名的的对话中，一位基金经理问麻省理工的保罗．库特内尔（Paul Cootner）说，“如果你那麽聪明，你为什麽没有很多钱？”库特内尔的回答是，“如果你那麽有钱，你为什麽不聪明呢？”
第二个问题的答案是，华尔街人士无需聪明而致富，因为就算他们推荐的股票不行，他们仍然可以从各种收费和交易佣金中挣钱。但 70 年代破坏性的熊市让一些投资者开始怀疑，托管他们钱的人是否值托管者付出的钱。这种想法的一个必然结果是指数基金，该品种不奢求超越市场表现，只求过得去的市场回报，而且管理费远远低于一 般更活跃的基金。1971 年旧金山的 Wells Fargo 投资顾问（现 Barclays Global Investors）创立了首家为机构投资者服务的指数基金。首家为个人投资者服务的指数基金 Vanguard Index Trust 在五年后成立。
同时，几位比库特内尔更有外交手腕的金融学者开始在现实世界中传播他们的风险和回报理念。普林斯顿大学的经济学家伯顿．马尔基尔（Burton Malkiel）1973 年出版的《漫步华尔街》（A Random Walk Down Wall Street），在将效率市场理念带给普通投资大众方面可能起到了最重要的作用。但在华尔街，最重要的使者是威廉．夏普（William Sharpe）。
今年 68 岁的夏普在南加州长大，并在加州大学洛杉矶分校学了经济学。他同样相信效率市场， 但他的研究（他 1990 年获得诺贝尔奖）对那些试图超出市场表现的人同样具有吸引力。在效率市场中唯一打败市场的做法是承担更多的风险。夏普创立了一个建立在以往波动率基础上的衡量风险的方法，名为“beta”，它有助于计划平衡的投资组合。它也能衡量积极交易的基金管理人究竟是战胜了市场，还是只不过是承担了更高的风险。
夏普并不满足于让他的观点仅仅停留在学术刊物上。他写投资和金融的教科书，而且还为华尔街和退休基金做咨询，忙得在 80 年代中期放弃了斯坦福的全职教职。1996年他甚至创立了一个网络公司，叫金融引擎（Financial Engines），以将他的建议与小投资者分享。因此，虽然夏普相信效率市场，他同样花很多时间帮助投资者做决定。这最后使他成为行为金融学迷。“在实用阶段，我相信谨慎的看法是相信市场在定价，风险和回报方面很接近有效率的形态，”夏普说。“但在另一方面，我们从认知心理学可以看到，普通人需要的是那些能帮助他们做出正确、而不是错误决定的选择。”
行为研究显示，投资者做的很多错误决定来自过分自信。就是说，我们认为我们知道的要比实际的多。我们做的交易太多，分散风险做的不够，我们根据最近发生的臆测未来。
诺贝尔奖获得者夏普仍然认为市场是有效率的。但是他也知道投资者的表现可能是非理性的
因此，许多行为学家的建议与保护小投资者不被自己所误有关。这也就是席勒花了很长时间考虑如何设计最优企业年金的原因。这也是夏普将行为学家的研究综合到金融引擎的建议中去的原因。难怪当一位 CNBC 主持人在丹尼尔．卡内曼 10 月份获得诺贝尔奖后采访他，问他有什麽建议给观众的时候，他回答说,“买入持有。”
当我几周后向法马重复卡内曼的话的时候，他的反应是很高兴。“这意味着我赢了！”他叫道。在某种程度上，这是一个荒谬的说法。行为学家显然是现在金融学术界的主流，随着一批教授开始出名，行为学从 90 年代不入流的地位取得了大步的跨越。但在现实世界的实例中，行为学家坚实的成功也说明了为什麽在实际投资建议方面，他们听上去那麽像法马和夏普。
现实世界的实例是 90 年代末的股市泡沫。根据严格的效率市场理论，对这一现象必须有理性的解释。法马认为为那些高高在上的因特网股票定价，虽然有风险，但是并不疯狂，因为早晚会有一二家公司现在亏损的公司会成为明天的微软。但他在这一点上几乎完全是孤立的。“我们经历了历史上最严重的泡沫时期，”马尔基尔说，现在他管自己叫“拄着拐杖的漫游者。”法马最喜爱的合作伙伴，达特摩斯的弗伦克几乎要说粗话但还是止住了。“我和尤金合作很密切，”他说。“如果我在媒体上用这个词的话他会非常难过的。”
" 诺贝尔奖得主夏普认为市场是有效率的，但是他也知道投资者可能是非理性的 "
耶鲁的经济学家席勒并不会因为激怒法马受到这样的良心谴责。1984 年他声称从发现“股价波动不可预测”得出的“价格永远是正确的”这一结论实际上是“经济思想史上最大的一个错误。”席勒由此成名。1987 年股市崩溃，效率市场派教授无言以对，席勒受到了更多关注。（“这很奇怪，”夏普当时对一位记者说。后来他的母亲打电话责备他：“你 15 年教育，3 个高级学位，就只能说“这很奇怪”吗？）
席勒 56 岁了，他在经济学领域师从麻省理工的塞缪尔森。他和席勒常年以来都是盟友，但是席勒看来和其他行为学家不同，他对将认知心理学的片瓦拼装起来解释股市泡沫缺乏兴趣。（这将回到这个持久的从过去臆测未来的缺陷）相反，他乐意接受常识，认为市场有的时候被潮流或是集体疯狂所主导。90 年代中，席勒确信到人们开始进入集体疯狂。他的证据很直白：市盈率太高了。他开始到处发出这个警报，包括在美联储。然后他写了《非理性繁荣》一书，2000 年 3 月上市。此时，股市达到巅峰。
席勒自谦，说此书上市时机之好纯粹是运气。他在 90 年代将自己大部分的钱从股市中抽了出来，他现在给投资人的建议是“彻底分散投资"，并且不要企图超越大势。这也正是夏普会告诉你的。法马和席勒的建议也差不多。
行为学家的秘诀是，尽管他们认为投资者是非理性的，市场也经常出现异动，但他们仍然相信市场运行良好，试图超越众多投资者的集体智慧往往是徒劳的。回答法马有关如何在市场价格不准确的条件下计算资金的成本的问题，行为学家说，为了做这样的计算他们可以假定价格是正确的。
但是效率市场也有个不可告人的秘密：如果要让市场继续保持它的效率，需要有很多理性投资者相信市场是无效的，所以倾其一生时间来试图打败市场。行为学家的理论当然不难解释有些投资者可以战胜市场。事实上，包括塔勒尔在内的几位行为学的教授，他们自己的资金管理公司都在利用研究中发现的市场例外现象牟利。
但要从市场例外中牟利是有限度的。因为“市场非理性的时间可以长到你破产。”人们普遍认为这是经济学家和投机大师凯恩斯（John Maynard Keynes）说的话，还有人将所有行为学理论都归结到凯恩斯 1936 年的《通论》（General Theory）第 12章，他将投资形象地描述为抢凳子的游戏。但是凯恩斯没有得出现代行为学家的一个重要结论：就是专业投资者现在受到客户的压力很大，因此他们无法做出那些可能会战胜市场的长期投资决策。如果他们这样做的话，就像 90 年代末很多试图以价值为依托的共同基金一样，不久就会发现没有顾客继续给钱让他们投资了。
这就把我们带到这样一个世界，有足够的忍耐力和敢于逆市场而行的勇气的投资人可以打败市场，但是绝大多数共同基金和对冲基金不能。换言之，行为学家用大多数专业基金管理人未能打败市场的压倒性的实证解释了沃伦．巴菲特（Warren Buffett）的成功（而绝大多数正宗的效率市场论者荒谬地认为他不过是运气而已）。
这一点，我们认为是一个重要的认知成就。这对你有何启示？很简单：买入持有，分散投资，将资金放入指数基金。将注意力放在你可以控制的事情上：尽量压低成本。
Investor's Guide 2003: Is the market rational? No, say the experts. But neither are you -- so don't go thinking you can outsmart it. By Justin Fox, FORTUNE Dec. 9, 2002 issue
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Buy and hold. Diversify. Put your money in index funds. Pay attention to the one thing you can control -- costs -- and keep them as low as possible. Today that is pretty standard, if often unheeded, investment advice. Forty years ago it was revolutionary. The revolution started on college campuses, in particular at the University of Chicago, and it went by the unrevolutionary-sounding name "efficient markets."
"In an efficient market," wrote Chicago professor Eugene Fama in a landmark paper he delivered at the 1969 annual meeting of the American Finance Association, "prices 'fully reflect' available information." That is, in an efficient market you can't beat the market unless you have inside information. So why bother trying?
That logic led, among other things, to the creation of index funds that aim to mimic, not beat, the likes of the S&P 500 and the Wilshire 5000. Today such funds account for about 10 percent of total . stock market capitalization, as well as 60 percent of what little money has flowed into equity mutual funds so far this year. But millions of small investors have continued to ignore the advice derived from efficient-markets theory, preferring instead to trade stocks and pile in and out of mutual funds in search of elusive market-beating returns (blowing much of their money on fees and commissions in the process).
Meanwhile, back on campus, a new generation of finance professors has been ripping Fama's teachings to shreds. The organizing principle for this new breed of scholars is not efficient markets but something called behavioral finance. Behavioral finance teaches that stock market investors are irrational, that future stock price movements are at least partly predictable from past behavior, and that careful analysis of past trends and financial reports can pay off. Which happens to be the way most investors see the market already.
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We're going to take you on a journey through the academic battles that have brought us to this point. This is FORTUNE's annual Investor Guide, not The Chronicle of Higher Education, so we wouldn't tell this story if we didn't think it had relevance for investors battered by the experience of the past few years. The message that the behavioral finance guys have for investors is that yes, you can beat the market, but -- for reasons that are essential to the whole behavioralist case -- you almost certainly won't. As a result, they end up offering much of the same investment advice that the efficient markets folks do. Only this time we might actually listen.
Gene Fama, it must be said, doesn't buy any of this. It's a cold, gray mid-autumn day in Chicago, but Fama is wearing a loud shirt with too-short sleeves that prove him to be probably the buffest 63-year-old finance professor on the planet. With the hint of a Boston accent that remains after two-thirds of a lifetime in Chicago, he's talking the academic version of trash. "I don't know that it's progressed much beyond the level of curiosity items," Fama says of the research done by the behavioralists. "They've got lots of interesting curiosity items."
For years Fama was more than tolerant of this search for "curiosity items." Unlike his longtime Chicago colleague Merton Miller, who saw the behavioralists' work as an ideological assault on free markets (Miller died in 2000), Fama always encouraged empirical research, even research that revealed seemingly inefficient market behavior. In a 1991 sequel to his famous "Efficient Capital Markets" paper of 1969, he acknowledged that reality had in fact turned out a lot messier than he and other efficient-markets theorists had envisioned -- although not so messy that the theories couldn't accommodate it.
In 1997, though, Fama wrote still another paper, one that argued that a lot of the purported market anomalies discovered by the behavioralists were due to bad statistical work, and that the behavioralists' attempts at building a theoretical alternative to the efficient-markets hypothesis had so far been "embarrassing." The paper was something of a sensation -- until interest in the .-area sniper sent a piece called "Multiple-Victim Public Shootings" to the top of the charts in October, it was the most downloaded work in the almost six-year history of the Social Science Research Network, a leading academic website. Fama had no problem with behavioral finance as a critique of efficient-markets theory. But he thinks it's a disaster as a replacement. "I don't know what asset pricing would look like in a world that really took behavioral finance seriously," he says. "If you really think prices are incorrect, what are you going to tell me about the cost of capital?"
We'll get back to that question. But first let us document the behavioralists' triumph. Half of this year's economics Nobel went to their patron saint, Princeton psychologist Daniel Kahneman (the other half went to Vernon Smith of George Mason, whose economic experiments have also shot holes in efficient-markets dogma). Then there's the John Bates Clark Medal, awarded by the American Economic Association every two years to the most important . economist under 40: The 1999 and 2001 editions both went to behavioralists. On the pop-culture front, Yale efficient-markets skeptic Robert Shiller's 2000 bestseller Irrational Exuberance was the most talked-about book by an economist in years.
The most dramatic development of all, though, may be that the office directly below Fama's at Chicago's Graduate School of Business now belongs to behavioralist pioneer Richard Thaler, 57. A magazine profile last year characterized Thaler, to the undying amusement of his students, as "thick-set," but that's not quite fair. He is not the jock that his upstairs neighbor is -- Fama beats him at tennis. But Thaler, who arrived in Chicago in 1995 after years in the relative academic wilderness of Cornell University, appears to have eclipsed Fama as the most influential faculty member at the business school that has had more influence on the study of finance than any other.
For decades the University of Chicago was the temple for those who believed that markets always got things right. Thaler's intellectual journey, in fact, began in the early 1970s on a campus that followed Chicago's example to almost absurd lengths: the University of Rochester. "I can remember my professors yelling, 'The price is right! The price is right!'" recalls Dartmouth finance professor Kenneth French, who arrived at Rochester just after Thaler left. "It was like a bad game show."
Rochester was an extreme version of the direction the entire economics profession -- not just its finance offshoot--had taken. The idea that economic activity can be explained as rational individuals trying to maximize their wealth goes back at least to 18th-century Scotsman Adam Smith, and the thought that all this was best expressed mathematically occurred to economists as long ago as the 1870s. But the approach didn't really take off until the 1947 publication of MIT professor Paul Samuelson's Foundations of Economic Analyses, which recast the principles of economics in the language of Newtonian calculus. The mathematization of economics that followed swept all before it. While academic economics had previously allowed room for multiple streams of thought, it took just a couple of decades before mathematical models built on the assumption of rationality were the only game on campus.
One of the most compelling of those models, and the one that seemed most closely to fit real-world data, was the efficient-markets hypothesis. It had its roots in empirical research that appeared to show stocks moving in a random walk -- albeit with an upward trajectory determined by rising corporate earnings. The theoretical explanation, first proffered by Samuelson in 1965 and soon elaborated by Fama (who got his . at Chicago in 1964) and others, was that stock prices fluctuate randomly because all knowable information about the value of a stock is already discounted in the price. That is, prices change only in reaction to news, which is by definition unpredictable.
For this view of price movements to work, the market has to behave rationally. That doesn't mean every last investor has to be rational; it's enough to assume that the hordes of irrational investors are irrational in different ways, thus canceling each other out. Or failing that -- and here the theory begins to wobble -- rational investors would be able to take advantage of the market's temporary insanity to make a killing and push prices to where they belong.
That brings us back to Thaler, who was working on a . in economics at Rochester in the early 1970s. His dissertation was an attempt to put a value on human life by looking at how much more people were paid to work in risky fields like mining and logging. He was working on the assumption, of course, that people rationally weighed the risk of death in their decision to accept a job.
Along the way Thaler decided to ask a few friends how much they'd be willing to pay to eliminate a one-in-1,000 chance of immediate death and how much they would have to be paid to willingly accept an extra one-in-1,000 chance of immediate death. What he found was that they wouldn't pay much for the extra margin of safety but demanded huge sums to accept added risk -- which isn't, strictly speaking, rational. "I came to two conclusions about these answers," Thaler wrote years later. "(1) I had better get back to running regressions if I want to graduate, and (2) the disparity between buying and selling prices was very interesting."
Thaler did discuss his subversive thoughts with a few trusted colleagues and people from other disciplines. One of those people happened to be a newly minted psychology ., who sent Thaler a copy of a 1974 article by Israeli psychology professors Amos Tversky and Daniel Kahneman. (Tversky died in 1996; if he were still around, he surely would have shared in this year's Nobel.) The article argued that in making decisions involving probability and risk, people rely on mental shortcuts that "are highly economical and usually effective but ... lead to systematic and predictable errors."
It was that last part that was so significant. That people make judgment errors wasn't news, but if those errors were "systematic and predictable," well, that was something an equation-wielding economist could get up and run with. (And making decisions involving probability and risk is what investing is all about, although Thaler wasn't really thinking about that at the time.) Thaler wangled a short-term research gig at Stanford University when Tversky and Kahneman were visiting professors there in 1978 and ended up staying for 15 months. Then he played a key role in unleashing Tversky and Kahneman's ideas on the economics profession.
The profession did not immediately respond with great enthusiasm. But over the years Thaler began to collect a few allies. Some were economists who shared his fascination with psychology. Others were number-crunching finance professors who had stumbled across seemingly irrational market phenomena -- from short-lived ones like the "January effect" of rising stock prices in the first weeks of the year, which disappeared not long after people started writing about it, to the persistent tendency of "value" stocks with low price-to-book ratios to outperform the market. Throughout the 1980s the ranks of the doubters grew, but they remained a fringe element.
The efficient-markets guys, meanwhile, not only had come to occupy the academic mainstream but also had moved in on Wall Street. Not surprisingly, their initial relations with the Street had been hostile. What the professors were saying, after all, was that highly paid fund managers and analysts were not worth a dime. Some of the professors clearly reveled in that: In one famous mid-1960s exchange, a money manager asked MIT's Paul Cootner, "If you're so smart, why aren't you rich?" To which Cootner replied, "If you're so rich, why aren't you smart?"
The answer to that second question was that people on Wall Street didn't have to be smart to get rich, since they could make money off fees and brokerage commissions even when their market calls stank. But the devastating bear market of the 1970s caused some investors to question whether the people with whom they'd entrusted their money really were worth the expense. One logical result of such thinking was the index fund, which instead of trying to outsmart the market simply tried to imitate it while charging much lower fees than actively managed funds do. The first index fund for institutional investors was started in 1971 by Wells Fargo Investment Advisors (now Barclays Global Investors) in San Francisco. The first such fund for retail investors -- the Vanguard Index Trust -- was launched five years later.
Meanwhile a few finance scholars of a more diplomatic bent than Cootner began spreading their ideas of risk and return in the real world. Princeton economist Burton Malkiel's A Random Walk Down Wall Street, published in 1973, probably played the biggest role in bringing efficient-markets thinking to the retail investing masses. But on Wall Street itself, the most important messenger was William Sharpe.
Sharpe, now 68, grew up in Southern California and learned his economics at UCLA. He was of the efficient-markets school, but his work (for which he won the economics Nobel in 1990) appealed even to those who still hoped to beat the market. In an efficient market the only way to outperform the market is to take on more risk. Sharpe devised a simple measure of risk based on past volatility, called "beta," that could be used to build balanced portfolios -- and to measure whether active money managers were actually beating the market or just taking on extra risk.
» Read the text of our Aug. 23, 2002 discussion including William Sharpe
Sharpe wasn't content to make his point merely in academic journals. He wrote textbooks on investments and finance and did so much consulting for Wall Street firms and pension funds that he gave up full-time teaching at Stanford in the mid-1980s. In 1996 he even launched a dot-com, Financial Engines, to make his advice available to small investors. So while Sharpe believes in efficient markets, he has also spent much of his career helping investors make choices. That, it turns out, makes him a big fan of behavioral finance. "As a practical matter, I still think it's prudent to assume that the market is pretty close to efficient in terms of pricing and risk and return and all that," Sharpe says. "On the other hand, we've certainly learned from cognitive psychology that ordinary human beings need to have alternatives framed in ways that can help them make right decisions rather than wrong decisions."
Most of the wrong decisions investors make, behavioral research has shown, stem from overconfidence. That is, we think we know more than we do. We trade too much, we don't diversify enough, and we extrapolate from the recent past to make assumptions about what will happen next.
As a result, much of what the behavioralists have to offer in terms of advice has to do with protecting retail investors from themselves. That's why Thaler spends a lot of his time thinking about how best to design 401(k) plans. It's why Sharpe incorporates behavioralist research into the advice Financial Engines doles out. And it's almost certainly why Daniel Kahneman, when asked by a CNBC anchorman the day after his Nobel was announced in October what investment tips he had for viewers, responded, "Buy and hold."
When I recount Kahneman's words a few weeks later to Fama, he reacts with glee. "That means I won!" he shouts. It is, on one level, an absurd claim. The behavioralists are now clearly the dominant stream in academic finance, having made the leap from outsider status during the 1990s as a new generation of professors rose to positions of prominence. But the real-world phenomenon that cemented the behavioralists' victory also illustrates why, when it comes to actual investing advice, they sound so much like Fama and Sharpe.
That real-world phenomenon was the stock market bubble of the late 1990s. According to strict efficient-markets thinking, there must be a rational explanation for what happened. Fama describes those sky-high Internet stock valuations as a risky but not crazy bet that one or two of those money-losing Net companies would end up as big as Microsoft. But he's almost all alone on this one. "We have just lived through the biggest bubble of all time," says Malkiel, who now calls himself a "random walker with a crutch." Fama's favorite collaborator, Dartmouth's French, is on the verge of using the b-word as well when he stops himself. "I work very closely with Gene," he says. "He would be very upset if I used that word in print."
Yale economist Robert Shiller has no such compunctions about ticking off Gene Fama. In 1984 he declared that the logical leap from observing that stock price movements were unpredictable to concluding that the prices are in fact right "represents one of the most remarkable errors in the history of economic thought." That was Shiller's first brush with fame. He got more popular attention after the 1987 stock market crash, which the efficient-markets professors had trouble explaining. ("It's weird," Sharpe told a reporter at the time. Later his mother called to berate him: "Fifteen years of education, three advanced degrees, and all you can say is, 'It's weird'?")
Shiller is 56 and did his economics training under Samuelson at MIT. He and Thaler have long been allies, but Shiller seems less interested than many of the other behavioralists in assembling the cognitive-psychology building blocks of a market bubble (which would involve that persistent flaw of extrapolating from the recent past to make assumptions about what will happen next). Instead he's perfectly willing to accept at face value the conventional wisdom that markets are sometimes taken over by fads and mass hysterias. By the mid-1990s Shiller had become convinced that we were entering into one of those mass hysterias. His evidence was straightforward: Price/earnings ratios were really high. He began sounding the alarm wherever he could, including the offices of the Federal Reserve Board. Then he wrote Irrational Exuberance, which hit bookstores in March 2000, just as the market peaked.
The book's perfect timing was dumb luck, Shiller himself says. And while he took most of his own money out of the stock market in the 1990s, his advice to investors now is to "diversify completely" and not try to beat the market. This happens to be what Sharpe would tell you. Or Fama. Or Thaler. The dirty little secret of the behavioralists is that, for all their work on investor irrationality and market anomalies, they still believe that markets work pretty well and that trying to outguess the collective wisdom of millions of investors is usually futile. In answer to Fama's question of how they plan to calculate the cost of capital in a world where prices are incorrect, the behavioralists say that for the purposes of such calculations, they'll just assume that prices are right.
But efficient-markets theory has a dirty little secret, too, which is that for the market to remain efficient, there have to be lots of rational investors who believe enough in the market's inefficiency to spend their careers trying to beat it. Behavioralist theory, of course, has no problem accommodating the belief that some investors can beat the market. In fact, several behavioralist professors, Thaler included, have money-management firms that try to take advantage of the anomalies they discover in their research.
But there's a limit to the riches that can be dredged from market anomalies. That's because "markets can remain irrational longer than you can remain solvent."
This aphorism is usually attributed to economist and speculator John Maynard Keynes, and there are those who contend that the whole of the behavioralist case is contained in chapter 12 of Keynes's 1936 General Theory, with its wonderful depiction of investing as a game of musical chairs. But the argument of modern behavioralists includes a crucial observation that wasn't in Keynes -- that professional investors are now under so much pressure from their customers that they cannot make the kind of long-term bets that might beat the market. If they do, as was the case with a lot of value-oriented mutual funds in the late 1990s, they can soon find themselves without any customers' money to invest.
That gets us to a world in which an investor with enough staying power and contrarian gumption can beat the market, but the vast majority of mutual funds and hedge funds don't. In other words, the behavioralists have reconciled the success of a Warren Buffett (which efficient-markets purists have absurdly termed dumb luck) with the overwhelmingly empirical evidence that most professional money managers fail to beat the market.
This is, we posit, a major intellectual accomplishment. What does it mean for you? That's easy: Buy and hold. Diversify. Put your money in index funds. Pay attention to the one thing you can control -- costs -- and keep them as low as possible.
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