Orthodox economics assumes that people know roughly what they are doing, that they are rational, and that rationality is unambiguous. But in financial markets, people often don’t know what they are doing. Recognising this helps to solve our puzzles.

Many hedge fund managers, for all their fancy jargon and maths PhDs, do what Nassim Nicholas Taleb accused them of in his book The Black Swan: they are just picking up pennies in front of a steamroller. And sometimes the steamroller accelerates.