There are two efficient market hypotheses. One is the bold, unsubstantiated proposition that financial markets are close to perfect and all-knowing. This theory was ferociously and convincingly attacked by Robert Shiller and Lawrence Summers three decades ago and quietly abandoned by its progenitors in the 1990s – although it lived on zombie-style in textbooks, central bank policy and some parts of the financial press until recently. When, these days, a pundit or government official rails against “efficient market theory”, this is what they mean.

A second efficient market hypothesis, however, deservedly survived the financial crisis. It holds simply that it is very hard for any investor (or regulator, or journalist) consistently to outsmart the market. Evidence keeps pouring in to back up this “No Free Lunch” theory, as economist Richard Thaler dubbed it in these pages last year, even while its “Price is Right” counterpart has been shown wanting.

The differing fates of these two hypotheses ought to inform our approach to reforming financial regulation. It can no longer be argued with a straight face that markets will, on their own, arrive at something close to an economically optimal result – a belief that helped drive deregulation over the past few decades. Yet it is not as if anyone else would do a better job than markets at setting prices and allocating capital. They would probably do worse. That is why giving regulators more leeway and authority to identify and halt overly risky behaviour – a pillar of most reform proposals in the US and UK – is unlikely to solve anything.