BY THE time he wrote The General Theory of Employment, Interest, and Money (1936), John Maynard Keynes thought markets had gone crazy — "with day-to-day fluctuations in the profits of existing investments having an altogether excessive, and even an absurd, influence" — and was sceptical that professional money managers would perform the role of the "smart money" that supporters of the efficient market hypothesis believe keeps markets efficient.Keynes thought professional money managers were playing something akin to an intricate guessing game in which competitors have to pick out the six prettiest faces from 100 photographs they think most likely to catch the fancy of other competitors, all of whom are looking at the problem from the same point of view.It’s an analogy behavioural economist Richard Thaler says remains an apt description of how financial markets work, as well as of the key role played by behavioural factors.Much of Keynes’ lasting popularity comes from his use of meta...
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