These papers take a deeper dive into diagnosing the problems that led to the 2008 financial crisis and explore alternative approaches to understanding markets with the goal of preventing another crisis. Both were written in 2010 by Better Markets Chairman Michael Masters and research director David Frenk.

The first paper – “How Markets Function” – traces the failure of the efficient market hypothesis, a belief that market prices reflect all known information and that government ought to minimize intervention. The paper notes that market participants are not rational, fully informed, autonomous players. Instead, their behavior is governed by a combination of institutionally driven incentives, and individual and collective psychology.

Anthropic Finance is different from behavioral finance, which studies how emotion and cognitive biases affect market participants. Anthropic Finance includes these traits but also considers other aspects such as all incentives and institutional or legal restrictions on behavior.

The second paper – “Better Markets: The Social Role of Markets” – explores an alternative view to that of market fundamentalism, the pre-crisis philosophy that encouraged deregulation and concentrated power in the hands of few large institutions. It proposes appropriate regulation designed to craft socially optimal markets that are built upon balance.