By now, the fallout from the epic financial crisis is both familiar and tangible: foreclosed mortgages, failed banks, lost jobs, recession. On the less tangible side, the meltdown also shook faith in a widely accepted economic principle: Markets are efficient. Since the mid-1960s, many academics have embraced the theory that prices paid in large public markets, such as those in stocks and bonds, reflect the collective wisdom of investors acting rationally on all available information. Yet there's been growing recognition during the past 15 to 20 years that human psychology — including irrationality — can play havoc with the wisdom of crowds. The historic bursting of the real estate and financial bubbles further undermined the belief that investors and markets behave with machine-like perfection.
"It's the idea that we can use technology to harness all the information and systematically use it by applying computers. [Lee] was one of the leading figures in this evolution," says Richard G. Sloan, the L.H. Penney Professor of Accounting at the Haas School of Business at the University of California, Berkeley.
This piece originally appeared in Stanford Business Insights from Stanford Graduate School of Business. To receive business ideas and insights from Stanford GSB click here: (To sign up : https://www.gsb.stanford.edu/insights/about/emails ) ]