Important books and readings

I was recently asked by some of my students to provide a list of books and readings which I think that they ought to consider reading outside of class. I highly recommend the following set of books in particular:

1. Against the Gods: The Remarkable Story of Risk, by Peter L. Bernstein.

2. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition, by Burton G. Malkiel.

3. Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies, by Jeremy J. Siegel.

Philosophically, these books present what I would consider to be an “orthodox” view of finance, risk management, and economics; i.e., they fit well with the so-called rational choice, efficient markets view of the world.

For some heterodox alternatives, I like both of Nassim Taleb’s books:

4. Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (read this first).

5. The Black Swan: The Impact of the Highly Improbable (the sequel to “Fooled by Randomness”).

Unfortunately, I can’t recommend any books on the topics of behavioral economics or behavioral finance; the books I know of tend to be either too advanced or too superficial for most readers. However, I do recommend the article entitled “Aspects of Investor Psychology” by Daniel Kahneman and Mark Riepe which appeared several years ago in the Journal of Portfolio Management.

Finally, I would be remiss to not also include two other favorites which are not books on finance or economics; rather they deal with the history and philosophy of applied mathematics. These books include:

6. Innumeracy: Mathematical Illiteracy and Its Consequences, by John Allen Paulos.

7. A Brief History of Infinity, by Brian Clegg.

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