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Robert Shiller, a professor of economics at Yale University, made a prediction in 2005 that a massive bubble was developing in the housing market, and was proved right just two years later, it seemed a mortal blow for classical finance. Shiller is one of the founders of behavioral finance, a school of economics that believes that the psychological behavior of investors can have a big impact on markets. As he had done with his earlier prescient forecast of “irrational exuberance” in the stock market bubble of the late ’90s, Shiller seemed to be staging a direct attack on the Efficient Market Hypothesis (EMH), which University of Chicago economist Eugene Fama had developed three decades earlier. According to Fama, investors are always rational, and markets accurately reflect all publicly known information. In this utopian world, securities will always be appropriately priced, and no amount of analysis can result in outperformance. Shiller, for his part, vehemently disagrees.

“The Efficient Market Hypothesis is one of the most egregious errors in the history of economic thought,” he says. “It’s a half-truth.”

As Shiller suggests, the financial crisis of 2008–2009 seems to have given a major boost to behavioral finance theory, and its advocates are not shy in declaring victory. “If the argument is that people are perfectly rational, then we have won the argument,” says Dan Ariely, a professor of behavioral economics at Duke University’s Fuqua School of Business.

Yet, when the bubble burst, very few investors actually made any money from the subsequent market crash. Even funds that employ behavioral techniques to influence their investing fell sharply in 2008 along with the rest of the market. It’s true that some hedge funds made huge profits betting against subprime-mortgage-backed securities, but Richard Thaler, a professor at the Booth School of Business at the University of Chicago and a founding theorist of behavioral finance, says it’s almost impossible to earn a living making such investments.

“The world isn’t structured in a way that somebody could create a fund that will bet against bubbles when they appear, because you’d be on the sidelines a lot of the time and you’d go through really hard times,” says Thaler, who works as a principal at Fuller & Thaler Asset Management in San Mateo, California, when he isn’t teaching finance or doing academic research.