• Length:
    13 Weeks
  • Effort:
    6–10 hours per week
  • Price:

    FREE
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  • Institution
  • Subject:
  • Level:
    Intermediate
  • Language:
    English
  • Video Transcript:
    English
  • Course Type:
    Self-paced on your time

Prerequisites

None

About this course

Skip About this course

Half of all Americans have money in the stock market, yet economists can’t agree on whether investors and markets are rational and efficient, as modern financial theory assumes, or irrational and inefficient, as behavioral economists believe—and as financial bubbles, crashes, and crises suggest. This is one of the biggest debates in economics, and the value or futility of investment management and financial regulation hang on the outcome. In this course, MIT finance professor Andrew W. Lo cuts through this debate with a new framework—the Adaptive Markets Hypothesis—in which rationality and irrationality coexist.

Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, this course shows that the theory of market efficiency isn’t wrong, but merely incomplete. When markets are unstable, investors react instinctively, creating inefficiencies for others to exploit. This new paradigm explains how evolution shapes behavior and markets at the speed of thought—a fact revealed by swings between stability and crisis, profit and loss, and innovation and regulation.

A fascinating intellectual journey filled with compelling stories, the course begins with the origins of market efficiency and its failures, turns to the foundations of investor behavior, and concludes with some practical implications—including how hedge funds have become the Galápagos Islands of finance, what really happened in the 2008 meltdown, and how we might avoid future crises.

This course provides ambitious new approaches to address some of the biggest challenges facing us today such as cancer, climate change, the energy crisis, and how to navigate through the choppy waters of global financial markets in a post-COVID-19 world.

What you'll learn

Skip What you'll learn
  • Limits to rationality and market efficiency, and the adaptive nature of markets
  • Psychlogical, neuroscientific, and evolutionary foundations of human behavior
  • Formulation of the Adaptive Markets Hypothesis (AMH)
  • Applications of the AMH to hedge funds, the 2008 Financial Crisis, and COVID-19
  • Ethical implications and high-impact applications of the AMH
  • Unit 1: Introduction and Financial Orthodoxy
  • Unit 2: Rejecting the Random Walk and Efficient Markets
  • Unit 3: Behavioral Biases and Psychology
  • Unit 4: The Neuroscience of Decision-Making
  • Unit 5: Evolution and the Origin of Behavior
  • Unit 6: The Adaptive Markets Hypothesis
  • Unit: 7: Hedge Funds: The Galapagos Islands of Finance
  • Unit 8: Applications of Adaptive Markets
  • Unit 9: The Financial Crisis
  • Unit 10: Ethics and Adaptive Markets
  • Unit 11: The Finance of the Future and the Future of Finance

Meet your instructors

Andrew W. Lo
Professor,
MIT Sloan School of Management
Zied Ben Chaouch
TA and PhD Student, Laboratory for Financial Engineering
Massachusetts Institute of Technology

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Who can take this course?

Unfortunately, learners from one or more of the following countries or regions will not be able to register for this course: Iran, Cuba and the Crimea region of Ukraine. While edX has sought licenses from the U.S. Office of Foreign Assets Control (OFAC) to offer our courses to learners in these countries and regions, the licenses we have received are not broad enough to allow us to offer this course in all locations. EdX truly regrets that U.S. sanctions prevent us from offering all of our courses to everyone, no matter where they live.