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Adaptive Markets: Financial Evolution at the Speed of Thought – Andrew W. Lo

20th August 2019
adaptive markets book cover


Adaptive Markets is a book detailing the Adaptive Market Hypothesis proposed by the author. It aims to improve the current dominant economic theory, the Efficient Market Hypothesis, with behavioural economics. This is not a pure finance book as it references several fields, ranging from evolution to psychology. This book has received many recognitions in the business and finance field.


Andrew W. Lo is a Professor of Finance at MIT Sloan School of Management. As an academic, he has published numerous articles in his field. Other than that, he is also the author of several books related to economics, business and finance. He has a number of awards under his belt. He is also involved in the investment business through AlphaSimplex Group.


Adaptive Markets starts with an introduction and the main body is divided into 12 chapters. The introduction gives a brief explanation on the birth of the adaptive market hypothesis. The author first explains some basic economic theories and their application. He also points out the shortcomings of these theories. Then he uses results from biology, neuroscience, psychology, sociobiology and theory of evolution to point out the need of a new theory. After that, he moves on to the Adaptive Market Hypothesis and how it fits with the behaviours of the financial market. He also prescribes ways to fix the financial system. He ends the book with a vision of the future and a few proposals to achieve his vision.


As a book expounding a new theory, this can be considered as a textbook. Nonetheless, it is not as boring as a normal textbook. In fact, the author explains the topic in a very interesting manner. He includes not only researches on economics alone, but also from other disciplines. The connections that he makes are convincing. He offers another look at the financial market and admits that his theory is not the one true theory and may be refuted in the future. Nonetheless, he does think that his theory is better than the current theory. My main takeaway from this book is that human behaviour is not always rational and failure to adapt to changing environment causes the up and down of the financial market.

I enjoy reading this cerebral book as I am interested in the financial market. This book can be quite heavy and requires quite some time to digest. You might not like it if you do not want to spend so much time to understand a new concept or if you are not interested in finance or economics.


  1. The Adaptive Markets Hypothesis is based on the insight that investors and financial market behave more like biology than physics, comprising a population of living organisms competing to survive, not a collection of inanimate objects subject to immutable laws of motion.
  2. Fear is a very efficient mechanism for learning.
  3. Emotion is the primary feedback mechanism that causes us to update our heuristics.
  4. An evolutionary successful adaptation doesn’t have to be the best; it only needs to be better than the rest.
  5. We shouldn’t let finance drive our goals; our goals should be driving finance.


3 out of 3 stars

Interested in Adaptive Markets?

You may get the book from Kinokuniya Malaysia through the link below*.

Get the book here

*Disclosure: The above link is Involve Asia affiliate link. Thus, I may earn a small commission when you purchase the book through this link.

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