'Physics envy': How to draw the right lessons from the coronavirus

Which frameworks can investors use to navigate markets?

Economists have long sought 'laws' of the market like the laws of nature discovered by physicists, such as gravity or electromagnetism.

Much financial theory is based on assumptions which are treated like the laws of the natural world - but lack the robustness to be considered even a theory in the scientific sense. Coronavirus is one of the 'black swans' of the investment world. No one has a financial model which could have predicted how markets would react to it. What is more surprising are the attempts to apply market 'laws' the rest of the time. The Efficient Market Hypothesis, for example, assumes that all agents behave rationally - which is difficult to sustain in light of the work of psychologists and known b...