Wall Street’s biggest scam was convincing the world that stock-picking worked—then the University of Chicago exposed it as a glorified casino. In plain English, the Efficient Market Hypothesis didn’t just defeat stockbrokers—it destroyed the fantasy that finance was a game of genius rather than one of discipline and data. Without the University of Chicago’s financial theories, the average investor would still be paying hefty fees to Wall Street con artists selling fairy tales.
Money talks, but in the 1960s, it took a seat in the classrooms of the University of Chicago and learned some discipline. The ideas born in those halls didn’t just change investing—they revolutionized it, turning financial markets into laboratories and passive investing into the holy grail of wealth creation. And yet, as Errol Morris’s new documentary, Tune Out the Noise, shows, this seismic shift almost never happened.
Think about it: an unanswered phone call, a misplaced application, or a quirk of military service could have erased the very minds that reshaped global finance. Eugene Fama, who later won a Nobel Prize, nearly missed his chance at Chicago because his graduate school application got lost. It was pure luck that he called to check on it and happened to reach a dean who not only found it but offered him a scholarship on the spot. Myron Scholes, another future Nobel laureate, got his start because six other programmers didn’t show up to work, leaving him to dive headfirst into financial research. Meanwhile, David Booth, whose name now graces the University of Chicago’s business school, dodged the Vietnam draft by sheer chance when an officer decided to let him pursue his PhD instead.
Had fate played out differently, the world of investing might still be stuck in the dark ages, where Wall Street insiders peddled their stock-picking prowess like snake oil salesmen. Instead, the Efficient Market Hypothesis (EMH), index funds, and the Black-Scholes model transformed investing from a game of hunches into a data-driven science.
Fama’s EMH argued that stock prices already reflect all available information, making it nearly impossible to consistently beat the market. In other words, the stock-picking wizards of Wall Street were selling a fantasy—one that cost investors billions in unnecessary fees. This paved the way for index funds, where investors could simply track the market instead of gambling on individual stocks. The idea was so powerful that Vanguard’s Jack Bogle built an empire around it, proving that doing less actually made investors richer.
Meanwhile, Myron Scholes and Fischer Black developed the Black-Scholes model, a formula that made options pricing predictable and manageable. Before this, derivatives trading was a Wild West of guesswork and gut feelings. Afterward, it became the backbone of modern financial markets, fueling a trillion-dollar industry of structured finance. Love it or hate it, the Black-Scholes model gave birth to the derivatives market as we know it today.
Then came David Booth and Rex Sinquefield, two University of Chicago disciples who put the theories into practice. They launched Dimensional Fund Advisors, a firm that now manages over $777 billion, proving that academic finance wasn’t just a bunch of ivory-tower nonsense—it was the blueprint for beating Wall Street at its own game.
Yet, as Morris’s film reminds us, history is littered with examples of progress hinging on chance. The University of Chicago's financial revolution mirrors other great intellectual migrations, like the wave of Jewish scientists fleeing Nazi Germany in the 1930s, which helped the U.S. win the race to develop nuclear technology. Similarly, the tech boom that made Silicon Valley the world’s innovation hub wouldn’t have happened if William Shockley hadn’t wanted to live near his mother in California. What if Fama had never called about his lost application? What if Scholes had taken another job? What if Booth had been drafted and never returned to academia? The dominoes of history are terrifyingly fragile.
The irony is that even as these ideas took hold, the financial world resisted them. The same Wall Street firms that once dismissed index funds as a "sure way to mediocrity" are now selling them by the truckload. The same hedge funds that mocked passive investing are scrambling to justify their existence as they routinely fail to beat the S&P 500. The evidence is clear: the University of Chicago’s theories didn’t just win—they buried the old ways under mountains of data and decades of real-world performance.
But while the past 50 years were defined by the Chicago school’s triumph, the future is less certain. What comes next? Quantitative trading, driven by machine learning and artificial intelligence, is already shaping markets in ways that even Fama and Scholes couldn’t have imagined. High-frequency traders now move millions in microseconds, front-running markets with algorithms more complex than the theories that built them. Meanwhile, cryptocurrency advocates insist that decentralization will rewrite the rules of finance, even as fraud and speculation run rampant.
Yet, if history teaches us anything, it’s that revolutions rarely look like revolutions when they begin. In the 1960s, the idea that a stock market couldn’t be consistently beaten sounded absurd to Wall Street’s elites. Today, it’s gospel. The same fate likely awaits the next big innovation in finance—whatever it turns out to be.
The real tragedy? The financial industry still sells the illusion of expertise to an unsuspecting public. Active fund managers keep peddling their stock-picking skills despite mountains of evidence proving that most of them can’t outperform a simple index fund. Investors, dazzled by fancy charts and jargon, keep paying fees for a game they’ve already lost. It’s as if the lessons of Chicago are whispered in libraries while Wall Street shouts its myths from the rooftops.
If nothing else, Tune Out the Noise reminds us that the world’s biggest financial revolution almost never happened. Chance played its part, but it was the power of ideas that truly changed the game. And yet, one wonders—if the greatest investing minds in history needed sheer luck to make it, what hope does the average investor have against an industry built on deception? Maybe the only thing more efficient than the market is Wall Street’s ability to convince people otherwise.
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