In This Review

Adaptive Markets: Financial Evolution at the Speed of Thought
Adaptive Markets: Financial Evolution at the Speed of Thought
By Andrew W. Lo
504 pp, Princeton University Press, 2017

In this long, rambling, and frustrating but still fascinating work, Lo turns to neurobiology, psychology, and ecology to gain insight into the behavior of buyers and sellers of financial products. The book doubles as a kind of intellectual history of the global financial system and the innovations that have shaped it. Lo argues that modern economics mistakenly draws inspiration from the static quality of the laws of physics—think of the artificial Homo economicus of economics textbooks, with his unchanging preferences from which he maximizes utility—rather than from the field of biology, which explores the adaptability of systems to changing physical, technological, and social environments. The book abounds with interesting anecdotes drawn from many fields, including the author’s own experiences. (Readers learn, for example, that in an experimental setting, students who have studied banking are more likely to cheat at a game than those who have not.) Lo concludes with some concrete suggestions for how to better align the incentives of market actors and regulators with the goal of a sustainable, resilient, and efficient financial system.