Justin's book provides an excellent narrative history of how the notion of rational markets came to dominate the academic study of finance (and economics), and then spread into the massive, highly leveraged finance sector, with disastrous results. With a few notable examples, the amazing thing to me is the general absence of irony, self-awareness, and humility among the financial-economic complex.

Anyone who has read any significant amount of history knows that models are always upended, that all sorts of inefficient, whacky things happen, that economic discontinuities are commonplace, and that institutions and countries are frequently led by irrational people doing irrational things.

But when models blow up, the folks who devised them don't conclude there was something wrong with the model, or with the theory behind the model. They conclude that there was something temporarily wrong with the world, and that affairs will quickly regress to a rational mean. Which is why John Meriwether, the founder of Long Term Capital Management, who blew up his first hedge fund and a chunk of the financial system with the help of some of the rational market dudes, thought it would make complete sense to start another hedge fund. And it's why investors agreed to give him more money. D'oh! Is anyone really surprised that Meriwether's next fund blew up the next time the world lost its head? After being clobbered over the head repeatedly by the reality of irrational markets, of bubbles, of investment crazes, of whackiness, Justin shows that the best many of the efficient-market enthusiasts can muster is an admission that maybe things aren't as rational as all that.

I've long been flabbergasted at the presumptions of rationality - not just in economics, but in other academic disciplines. For nine years, I edited a magazine for New York University's business school. Much of the job consisted of taking academics' long research papers and boiling them down into 2,500-word pieces that an educated lay person could understand. Time and again, I'd see papers written by economists and other academics, which were to be published in the top academic journals, whose introduction would go something like this: "Markets being efficient (footnote to Eugene Fama), we hypothesize X.X.X." As a connoisseur and historian of bubbles, these always caused me to burst out laughing. Could these professors not see what was happening in the 1990s a few blocks to the north of them (where Silicon Alley dotcoms were getting absurd valuations) and a few blocks to the south (where Wall Street was giving those Silicon Alley dotcoms absurd valuations)?

As I said, though, economics isn't the only discipline that falls prey to the presumption of rationality. A large chunk of the study of international relations, for example, relies on the "rational actor" theory. I vividly recall sitting in a graduate seminar on international relations conducted by the late Ernest May. We were talking about deterrence, nuclear weapons, and mutual assured destruction in the 1960s. I wondered aloud how all these theories could hope to account for someone like Richard Nixon, who ran the nation's foreign policy for eight years. "But he was crazy!" I blurted. "He was! And Kissinger too!" My colleagues looked at me as if I were insane. It was about then I decided that a Master's degree would be sufficient.

The systemic market failures we've seen, the humbling of a chunk of the rational market crowd, and the rise of the behavioralists are all undermining the deeply held faith whose growth Justin describes. But I think there is still not nearly enough appreciation for the irrational in economics, finance, or politics. And the best place to get this appreciation is from works of history. If you want to understand what makes someone like Sarah Palin run, don't read David Broder. Read two works by the great historian Richard Hofstadter: Anti-Intellectualism in American Life, and The Paranoid Style in American Politics.