A professor of finance at MIT, Andrew W. Lo is an editor of the RSF volume Rethinking the Financial Crisis. The volume addresses important questions about the complex workings of American finance and shows how the study of economics needs to change to deepen our understanding of the financial sector.

MIT economist Andrew Lo set out to review a couple books about the financial crisis. Those books led to a couple more books, which led — you see where this is going — to 17 more books. Now, Lo is about to publish "Reading About The Financial Crisis: A 21 Book Review."

As the Greek government appears increasingly likely to default on its debt, economists are envisioning potential dire spillovers to the United States, with anxiety afflicting the financial system, making money tight and possibly tipping the American economy back into recession. MIT Sloan Professor Andrew Lo says, "We may see a number of banks go under."

As investors adjusted to a new world in which the United States government doesn't have a perfect credit rating, stocks suffered one of the worst sell-offs in history Monday, and a fresh recession seems increasingly possible. Professor Andrew Lo says: "American voters are going to realize that the political impasse has consequences that will hit them in the pocketbook."

MIT economist Andrew Lo, who beyond guest-blogging his favorite recent economics book here on Making Sense this week, appears on Friday’s NewsHour, discussing how human frailty and bad decision-making factored into the financial crisis.

A study co-authored by MIT Sloan Prof. Andrew Lo concluded that under certain conditions, all it takes to fan the flames [of a financial crisis] is for a critical mass of people to extract money from their homes in the form of home equity loans, sales and "cash-out" refinancing.

Andrew W. Lo, director of the Massachusetts Institute of Technology's Laboratory for Financial Engineering, breaks down the hot debate brewing about the cause of the current financial crisis. Learn the arguments for and against the claim that complex financial securities and the mathematical models used to manage them should take the blame. Was it systematically programmed or just human nature?

The basic principles of asset allocation need to be revised," says MIT finance professor Andrew Lo. He and other experts argue that since market volatility is rising, you must now own other assets—such as hedge-fund-like investments—in addition to stocks and bonds to manage risk. And you must be prepared to shift your mix tactically from time to time. "You need to be proactive and adjust as the market changes."

The push for financial regulatory reform has highlighted an important debate surrounding the Efficient Markets Hypothesis, the idea that market prices are rationally determined and fully reflect all available information. If true, the EMH implies that regulation is largely unnecessary because markets allocate resources and risks efficiently via the "invisible hand". However, critics of the EMH argue that human behaviour is hardly rational but is driven by "animal spirits" that generate market bubbles and busts, and regulation is essential for reining in misbehavior.

Andrew Lo presenting at 2009 SIAM annual meeting to discuss the causes of the financial crisis.