One thing that might be helpful in considering the shape of future scholarship is to clear out some of the underbrush. One misconception at least in the popular press that I think is counterproductive is the idea that the crisis has proven that some of the main pillars of neoclassical finance - from the Efficient Markets Hypothesis (EMH) to the Black Scholes model used to price many derivatives - are "wrong." I get snickers from students when I teach Basic now, with the standard reaction being "ha-ha: they actually believed financial markets were efficient."

That's not a particularly useful lesson to draw from the crisis. A better lesson would be that it is critical to pay attention to the explicit assumptions and limitations of financial theories. For example, the corrective power of arbitrage is a key component of the EMH. But what happens when arbitrage is limited or when arbitrageurs ride a bubble rather than trade against it? Similarly, the Black Scholes model assumes among other things stable interest rates and that stock prices don't move in dramatic jumps (I know this is a simplified description). What happens when those two assumptions don't hold?

So the real problem is not that these various intellectual models are "incorrect", it is that it is precisely when their assumptions don't hold that we most have to worry about market meltdowns. "Most of the time" may work well in a civil engineering class, but is not the standard by which you build a levee in New Orleans.

Moreover, many of the legal rules ostensibly premised on the EMH or another element of neoclassical finance do not necessarily need to be tossed overboard just because we know there are limitations to finance theories. This is not a new insight, it is actually close to twenty years old (see Langevoort, Theories, Assumptions and Securities Regulations, 140 U. Pa. L. Rev 851 (1992)), but it bears repeating.

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