The Biggest Mistakes We Teach

When I started to teach at the University of Pennsylvania’s Wharton School over twenty years ago, I used the very first edition of the Brealey and Myers’ textbook. The book had some mistakes in it, as almost all books do. For example, the first two editions had an incorrect formula for the valuation of warrants. I taught the incorrect formula for several years before a perceptive student asked a question that exposed the mistake. But I don’t want to dwell on technical errors. Instead, I want to focus on some of the conceptual mistakes that dominate the received body of wisdom in the academic finance profession.