When is the market genuinely irrational, and when have you simply failed to understand what the market understands?
Alex Edmans, Professor of Finance at London Business School and author of The Madness of Markets, joins me to talk about market psychology, stories, bubbles and what behavioural finance can actually teach investors.
Alex explains his research showing that stock markets tend to fall after a country is knocked out of the World Cup, even though a football result should have little effect on corporate profits. From there we ask what really counts as market “madness”, why collective beliefs can sustain the value of assets such as gold and crypto, and how markets can show both short-term momentum and longer-term reversal.
We also discuss why investors still struggle to value intangibles such as culture and employee satisfaction; how share prices can change corporate decisions rather than simply reflect them; and whether professional investors are actually less biased than everyone else.
Alex is candid about his own mistakes. He talks about a failed investment in a fitness start-up, the one-minute delay he put on his email outbox to counter his tendency to interpret messages negatively, and why he deliberately seeks out people and evidence that challenge what he already believes.
We also cover Neil Woodford, cognitive diversity, sustainability and ESG, misinformation, AI, deep work and Alex’s creative process.
At the heart of the conversation is a difficult investing question: if you think the market is wrong, what evidence would convince you that it is actually you who is wrong?
Contents
00:00 Meet Alex Edmans
00:35 When are markets really irrational?
01:29 Football results and investor sentiment
07:47 Stories, narratives and bubbles
12:33 Momentum, reversal and behavioural finance
16:17 Why markets misprice intangibles
24:07 How prices change real decisions
33:02 Are professional investors less biased?
39:55 Alex’s failed start-up investment
43:03 Rethinking sustainability
47:48 Overrated / Underrated
56:06 Social media and AI
01:00:06 Deep work and creativity
01:03:36 Final advice
Transcript, links and key takeaways:
www.thendobetter.com/investing/2026/9/18/alex-edmans-the-madness-of-markets-when-are-markets-really-irrational
