"There is now widespread acceptance that investors can behave irrationally" <- Get out of here. People are irrational?<p>All kidding aside, I started my university studies in economics before switching over to management halfway through. The thing about efficient markets isn't that economics is claiming that things are instantly, always, 100% priced correctly, it's that they'll price themselves correctly over time and in aggregate. Econ doesn't say that no one will make a bad purchase ever, it says that if you wait around for a while, the "invisible hand of the market" will do its thing and price things correctly. If people are "overpaying" for gasoline, more people will start digging and refining oil to take those profits. The more people that start producing, the more prices will have to fall to compete, until prices get sane again. If lots of speculators get involved as they have recently, they'll artificially decrease supply by stocking reserves until they need to eventually unload those reserves, resulting in - as we saw - prices going up, up, up - and then crashing down, down, down when the speculators have to unload their oil on the market. Funny how everyone who complained about speculators and gas for the last few years aren't talking about how cool it is to have gas in the $2 to $3 range again.<p>So sure, housing was overheated for a few years. Then people realized it, and you can see what's happening now. It's not really a pleasant thing that people make bad decisions that aren't obviously bad decisions at the time, but it's been the nature of reality for as long as reality has been around. Nowdays, instead of worrying nonstop about droughts, famine, floods, plague, we're worrying about things that are relatively much less painless. There's still unpredictability and people don't act perfectly in any given timeframe, but things tend to straighten themselves out if you give it a while.