Rate this book

Clear rating

1 of 5 stars 2 of 5 stars 3 of 5 stars 4 of 5 stars 5 of 5 stars

The (Mis)Behavior of Markets

by Benoît B. Mandelbrot, Richard L. Hudson

3.98 of 5 stars 3.98 · rating details · 838 ratings · 69 reviews

Benoit B. Mandelbrot, one of the century's most influential mathematicians, is world-famous for making mathematical sense of a fact everybody knows but that geometers from Euclid on down had never assimilated: Clouds are not round, mountains are not cones, coastlines are not smooth. To these classic lines we can now add another example: Markets are not the safe bet your br...more

Hardcover, 352 pages

Published August 3rd 2004 by Basic Books (first published 2004)

more details... edit details

Get a copy:

More…

Friend Reviews

To see what your friends thought of this book, please sign up.

Lists with This Book

This book is not yet featured on Listopia. Add this book to your favorite list »

Community Reviews

(showing 1-30 of 1,829)

filter | sort: default (?) | rating details

Feb 08, 2012 Ivan Idris rated it 5 of 5 stars

In these turbulent economy we seem to be victims of the financial markets. Benoit Mandelbrot, famous mathematician and inventor of fractal geometry, joined forces with Richard Hudson, to write a book about financial theory. “The (Mis)behavior of Markets” falls in the popular science genre. It is low on formulas, instead you can find lots of historical anecdotes and opinions.

1. Risk, Ruin and Reward

We start with a brief history of finance. The author asks us to play a game. Out of 4 charts we nee...more

like 2 likes · see review

Oct 17, 2010 David rated it 3 of 5 stars

The (Mis)Behavior of Markets by Mandelbrot and Hudson is a pretty good book about a fascinating topic. Mandelbrot's thesis is that many common beliefs underpinning market modeling software are fundamentally incorrect, and that in using them we are exposing ourselves to massively more risk than we expect. This book was published in 2004.

To describe Mandelbrot as prescient in characterizing the inadequacy of market modeling is to understate the situation. Using very little serious math and very fe...more

like 1 like · see review

Aug 19, 2012 Timothy rated it 5 of 5 stars · review of another edition

When I first encountered this book I did a slight doubletake, "wait, THE Benoit Mandelbrot?"

"Why is he writing about financial markets?" I wondered.

I knew of Mandelbrot in mathematics, computer science, and natural sciences -- I had no idea how deep his obsession with economics was till I read this book.

In a way, it's almost depressing, his biggest contributions were to fields he didn't seem to care about as much as economics (a field that in turn didn't seem to care about his work).

Mandelbrot's...more

like · see review

Nov 16, 2011 J Scott Shipman rated it 4 of 5 stars · review of another edition

Benoit Mandelbrot's The (Mis) Behavior of Markets is a splendid read and very informative. As many reviewers have noted, Mandelbrot invented fractal geometry. He has also been on the cutting edge (some would say fringe, but he's thinking and questioning) in multiple disciplines, as his curiosity seem to know no bounds. Mandelbrot does a good job of describing the inadequacies of the efficient market hypothesis and CAPM and other sacrosanct theories in finance, and he offers for our consideration...more

like 1 like · see review

Aug 20, 2011 John Tye rated it 4 of 5 stars · review of another edition

Like most good books about the markets, Benoît Mandelbrot's The mis Behavior of Markets is not really about trading or making money (although, if it helps you better understand risk, it could save you money--which is essentially the same as making money). In fact, one could almost say the book is about fractal processes, using the markets as a case study. In this way, it is reminiscent of Nassim Nicholas Taleb's Fooled by Randomness, which uses the markets largely as a basis to investigate logic...more Like most good books about the markets, Benoît Mandelbrot's The mis Behavior of Markets is not really about trading or making money (although, if it helps you better understand risk, it could save you money--which is essentially the same as making money). In fact, one could almost say the book is about fractal processes, using the markets as a case study. In this way, it is reminiscent of Nassim Nicholas Taleb's Fooled by Randomness, which uses the markets largely as a basis to investigate logical fallacies (and it is not particularly surprising to find blurbs of praise from Taleb on both the front and back covers).

The standard models of finance have been soundly thrashed, and yet they continue to be used because they are easy and convenient. As clever as they may have been, Markowitz and Sharpe and Black and Scholes, et al, were basically financial alchemists. Part of Mandelbrot's point is that their models are not merely inadequate, they so severely underestimate risk as to be catastrophically dangerous--worse than useless, and not improved by adding epicycles. Even if no one except perhaps some hermetic academics believe in the efficient-market hypothesis, typical analysis continues to rely on tools that make assumptions like normal distribution of returns and the applicability of continuous mathematics.

Mandelbrot's work in the area of finance remained, to the time of his death in October 2010, purely descriptive; he never created a model suitable for predicting market behavior. This is a limitation of this work, and one that Mandelbrot himself laments. He writes, "It is beyond belief that we know so little about how people get rich or poor, about how it is they come to dwell in comfort and health or die in penury and disease. Financial markets are the machines in which much of human welfare is decided; yet we know more about how our car engines work than about how our global financial system functions.... So limited is our knowledge that we resort, not to science, but to shamans." This is a somewhat strange and emotional outburst, given how much simpler an engine is than a bunch of humans playing high-stakes guessing games. But it gives some indication of the difficulty involved.

One of Mandelbrot's more interesting propositions concerning the markets is that returns can show dependence without correlation, a seeming paradox. But as he explains it, "The key to this paradox lies in the distinction between size and direction of price changes. Suppose the direction is uncorrelated with the past: The fact that prices fell yesterday does not make them more likely to fall today. It remains possible for the absolute changes to be dependent: A 10 percent fall yesterday may well increase the odds of another 10 percent move today--but provide no advance way of telling whether it will be up or down. If so, the correlation vanishes, in spite of the strong dependence." Compellingly, he presents a multifractal model that combines Brownian price changes with fractal time, yielding clusters of volatility strikingly similar to real market behavior.

Clearly, this book is not the key to riches. That might be nice, but it would not be nearly as interesting. This book is more about how the same mathematics that applies to Nile flood levels or the measurement of coastlines can be used to describe the behavior of markets. Read it because you take pleasure in investigating recurring mathematical motifs in the world, not because you are on a single-minded quest to make money.(less)

like 1 like · see review

Aug 23, 2010 Duffy Pratt rated it 4 of 5 stars

Shelves: science

I first heard about the efficient market theory in Law School. I remember thinking at the time what obvious bullshit it was. But it was academia, and it was pretty harmless bullshit, so let the economists play whatever games they want. What difference did it make?

The theory goes that the markets already consolidate all the information available to them, so that price already incorporates all the information available to the market. From there, we get the random walk theory -- that prices will mo...more I first heard about the efficient market theory in Law School. I remember thinking at the time what obvious bullshit it was. But it was academia, and it was pretty harmless bullshit, so let the economists play whatever games they want. What difference did it make?

The theory goes that the markets already consolidate all the information available to them, so that price already incorporates all the information available to the market. From there, we get the random walk theory -- that prices will move in a random fashion, so that each price move is basically the flip of a coin. And from these premises, we then get modern financial theory, including the idea that risk is the same as statistical variance, which leads to the Sharpe ratio for evaluating an assets value, and also leads to the Black Scholes method for pricing options, and to modern portfolio theory (by which a portfolio is designed around the appropriate level of risk for an individual investor). The math for doing this seems very sophisticated, and variations on these approaches have served as the backbone for the financial industry.

But there's a slight problem. The basic assumptions underlying all this theory is wrong. Prices don't vary like the flips of a coin. They are much wilder that tossing a coin. According to conventional theory, Black Monday in 1987 should have occurred perhaps once in an eon. In 1997, there were three days in a short period of time that had moves which the theory would predict should occur only once every 10,000 years or so. And the same thing again for the recent financial collapse.

Wall Street adopted these economic theories. They were relatively easy to use. They have an air of scientific knowledge to them. There are nobel prizes awarded to the developers of them. But, they don't fit the data at all. They grossly underestimate risk, largely because they insist that data should fit a bell curve, when it simply doesn't fit. And they then took risks, this time with their own money, based on these false economic engineering ideas. The result was the near collapse (and the jury may still be out on this) of the entire world financial system.

Mandelbrot, the author of this book, is a mathematician. He invented the field of fractal geometry, and is probably most notable for the Mandelbrot set, which yields incredibly intricate and beautiful fractal designs. As far back as the early 1960s, Mandelbrot did extensive study on Cotton markets. For some reason, there is good data on daily cotton prices going back to the mid 1800s. As a result of his studies, Mandelbrot concluded that markets are more fractal than continuous, and that the assumptions that economists used were simply wrong. He started complaining about this 40 years ago, and as recent history shows, people still are not listening. He claims to have written this book to bring his case directly to the public. (The same process worked pretty well for him in popularizing the idea of fractals in the first place, and ultimately getting them accepted in academia, where math departments were skeptical of geometry with practical application.)

The book is very well written, and easy to understand, especially since it deals with a field where people tend to be abstruse and to obfuscate whenever possible. (Have you ever read any statement by Alan Greenspan, for example?) The criticisms of standard financial theory seem perfectly sound.

However, when it comes to giving practical advice, the book seems on much shakier grounds. He calls for more open minded study of markets, which would not be a bad thing, especially since we now know that the market making companies are all too big to fail. On the last page, he calls for a "coordinated search for patterns in the financial markets." And this is fine. But at several places he makes fun of "chartists, " precisely because chartists think that they have found discernible patterns in the markets. He doesn't offer any evidence to show that they cannot have done so, and his call at the end shows that he thinks there may be such patterns.

Overall, I think this book is worth reading for anyone who is interested in the behavior of markets. And its fun for people, like me, who are deeply skeptical of the usefulness of anything that comes out of an economist's mouth.(less)

like 4 likes · see review

Mar 18, 2012 Zachary rated it 4 of 5 stars

Well, I certainly walked away with a healthier appreciation of the risk of the markets. This book makes The Big Short seem inevitable.

Also enjoyed this near-closing quote ...

"We lurch from crisis to crisis. In a networked world, mayhem in one market spreads instantaneously to all others - and we have only the vaguest of notions how this happens, or how to regulate it. So limited is our knowledge that we resort, not to science, but to shamans. We place control of the world's largest economy in th...more

like · see review

Apr 11, 2013 Jacopo rated it 4 of 5 stars · review of another edition

I think this is a very good book to the extent that you have a cross interest for finance, mathematics and statistical modeling. I found it particularly interesting concerning the Mathematical/statistical apsects since it explains in the least technical possible way the elegant theory developed by Mandelbrot to explain highly non-linear phenomena (i.e. the evolution of financial markets are just one of the possible phenomena these theories may be applied to). As a side you are provided with insi...more

like · see review

Jan 27, 2009 Emily rated it 2 of 5 stars

This book lays lots of groundwork before it finally gets to the point. I would recommend a reader read the first chapter of part III (10 Heresies of Finance) at the start to give yourself a grounding then read the rest of the book. It might help to know where he's going during part I and part II.

All in all, some interesting beginnings of theories and comparisons. There is almost no math involved. But if you're scared of math, this is a great glimpse into fractals and it starts to show glimpses...more

like 2 likes · see review

Feb 09, 2013 Alec Myres rated it 3 of 5 stars · review of another edition

Mandelbrot is a genius mathematician and an applied mathematician nobly searches to apply his ideas to the real-world. Finance is certainly a nebulous world, far from deterministic or even stochastic understanding, but Mandelbrot's approach feels a little sloppy and self-serving. I love mathematics and really wanted him to succeed with this book, and though he brings up many great points and finds fascinating applications of fractal geometry to modeling turbulence in the financial world, the boo...more

like · see review

Jul 06, 2010 Ron rated it 3 of 5 stars

Shelves: finance

I ran across a reference to this book on Motley Fool's METAR board a while back. Some of you may recognize the author's name. He is the guy who invented fractels.

The primary thing I learned from this book is that market price changes do not follow the familiar bell curve. Most if not all financial institutions assume the bell curve. Unfortunately the real curves fat tails. Consequently, large price changes happen a lot more often than predicted by bell curves. This means that most financial inst...more

like · see review

Apr 03, 2013 Bob Perry rated it 5 of 5 stars

This is probably the most important and insightful book on the stock market that I've ever read. I had no idea the economists base their whole dogma on mathematics that hsa been proven to be wrong.

Benoit, as always, looks at the world differently. Thats how he developed fractal geometry and how chaos theory evolved from that. When he took a look at cotton prices over 100 years he immediately realized that the data doesn't fit the current then nor now rules of evaluating risk.

He has been writin...more

like · see review

Apr 29, 2012 Ben Sutter rated it 4 of 5 stars

Imagine if you could just abandon everything you were ever taught. If you could take all the years of training and textbooks and shelf them respectfully in a locked cupboard. Imagine if you could throw yourself off a cliff just to see if you could fly; this is the sort of intellectual freedom that this book entices. The ideas are both liberating and scary. The book has no answers, but helps you ask the right questions. Whether I truly pursue these ideas is as much a test of my courage as it is o...more

like · see review

Sep 23, 2011 Kate rated it 3 of 5 stars · review of another edition

I wish I could give this book four stars. But Mandelbrot's slightly tiring writing style prevents me from doing so. The main author obviously thinks remarkably highly of his own work (which is not a bad thing in itself--he is, after all, a revolutionary mathematician--but does he have to express it ad infinitum?), and deems himself an excellent judge of character of historical figures who he has never met. (Disclaimer: It's probably worth noting I have a very low tolerance for self-congratulatio...more

like 1 like · see review

Jan 26, 2012 David rated it 4 of 5 stars

Shelves: mathematics, economics

Benoit Mandelbrot is the inventor of the mathematical concept of fractals. His earlier book The Fractal Geometry of Nature was a truly groundbreaking book about fractals and how they are seen in nature. In The Misbehavior of Markets he turns his attention to the application of fractal concepts to markets. Mandelbrot shows that price fluctuations:
1) are not independent from one time period to the next
2) appear to be the same, regardless of the time scale involved (hours/days/months/years)
3) do no...more

like 2 likes · see review

Mar 26, 2011 Bumberings rated it 4 of 5 stars · review of another edition

Shelves: finance

Mandelbrot's novel "The Misbehavior of Markets" is truly a hidden gem. The deeper into the book I went, the more it spoke directly to my darkest intuitions. I actually started to get the feeling that no one else has actually bothered to read the book cover to cover.. all of his wealth of knowledge felt as if it was almost becoming my little secret. Indeed even the jacket reviews are not very convincing. Paraphrasing the Financial Times "[a famous math guy wrote a book.. Math!!]" and the Sunday T...more Mandelbrot's novel "The Misbehavior of Markets" is truly a hidden gem. The deeper into the book I went, the more it spoke directly to my darkest intuitions. I actually started to get the feeling that no one else has actually bothered to read the book cover to cover.. all of his wealth of knowledge felt as if it was almost becoming my little secret. Indeed even the jacket reviews are not very convincing. Paraphrasing the Financial Times "[a famous math guy wrote a book.. Math!!]" and the Sunday Telegraph "[founder of fractal geometry, father of chaos theory.. one intelligent dude]" I sincerely doubt their respective reviewers read it, and I can certainly understand why no one was rushing out to pick up a copy after reading their generic enthusiasm.

At its core the book is (a) Mandelbrot's presentation of "modern" financial theory (b) why and how that body of tools is not a complete failure, but because I discovered fractal geometry back in the 1960s it actually sort of is a complete and utter failure and (c) how the market can be better approximated using fractal patterns and analysis. To keep this review incredibly straightforward, "modern" financial theory (EMH, CAPM, Black Scholes) is built on extensions and patchwork of academic work that is based on faulty assumptions. The idea that prices change are independent and move according to a random walk is bullshit. Price changes are not smooth and stocks exhibit long term dependence. At it's fundamental core the market is fractal, not Euclidean, as are many phenomena in real life. Therefore, price changes should be more closely approximated (ie: financial models) by power laws as opposed to a normal Gaussian bell curve distribution.

As a result: when financial engineers (ie: smart math and science people who go into fields which have no redeeming societal value such as high frequency trading) futilely try to map the financial future as a precise science to profit an extra fraction of a penny in a fraction of a second with less variability, because these nerds use formulas of "modern" finance.. And because everyone seems content with keeping the basic foundation of the formulas for the foreseeable future since the math is easy and the approximations "good enough".. the market will likely continue to exhibit higher volatility than they expect. Risk will be higher than confidence dictates.. bubbles will continue to form, and pop with alarming regularity.. and anomalies, and general market misbehavior will remain an innate part of our understanding of finance and economics.(less)

like · see review

Jul 25, 2009 Terry rated it 4 of 5 stars · review of another edition

This book has three characters in it:
-Benoit Mandelbrot, author
-The Market, the protagonist/antagonist/chorus as per Greek drama
-Benoit Mandelbrot's ego

Maybe it's a side effect of some incident as a child but the author has no reservations about promoting himself. Whole paragraphs are devoted to his "enlightened breakthroughs" and profound understanding of market mechanics. An understanding so deep he proposes no significant market model and merely a direction.

He stands as the most cited author...more

like 1 like · see review

Oct 28, 2011 Greg Linster rated it 5 of 5 stars · review of another edition

The seemingly improbable happens relatively frequently in financial markets. Consider this: on October 19, 1987 the Dow Jones Industrial Average (DJIA) dropped by 508 points to 1738.74 (22.61%). According to modern financial theory, the probability of that happening is roughly 10^50 (odds so small they have no real meaning).

What does a fractal view of the world of finance look like? The (Mis)Behavior of Markets: A Fractal View of Financial Turbulence elucidates on the answer and does so in bril...more

like · see review

Feb 15, 2012 Phil rated it 5 of 5 stars · review of another edition

This is a mind-opening book, especially for somebody who sunk a fair amount of undergrad into ARCH models. Mandelbrot is a lot more affable than his disciple (Taleb) and the book features high-quality visualizations. This is not for the faint of heart, but his ten heresies at the end are legitimate points that modern finance fails to address. It holds up even better because it was written before the most recent financial crisis.

like · see review

May 14, 2013 Philski rated it 5 of 5 stars

Excellent book by Mandelbrot himself on markets and why they aren't brownian (that is, move up and down in a continuous fashion) and how fractals can be used to represent markets. He goes into volatility and how a Gaussian distribution cannot properly describe markets. And yet for the most part the big models people use (Sharpe ratio, Black-Scholes volatility calculation) are all based on Gaussian distributions, greatly underestimating the risk of ruin.

Great companion to Nassim Taleb's books.

like · see review

Jan 04, 2009 Chris rated it 5 of 5 stars

another book for those interested in finance, especially quant related finance. if you are studying standard deviations and what not, put down what you are reading and pick this up. written for the lay person, no math skill needed. bbn heavily inflenced nassim nicholas taleb, author of 'black swan'. a easy and interesting read meant as an overview or intro.

like · see review

Apr 12, 2012 Sean rated it 3 of 5 stars · review of another edition

I seem to have read many books with a theme similar to the premise of "The Misbehavior of Markets", highlighting the flaws in the Efficient Markets Hypothesis. This book would have received only two stars if the author had not digressed into fractals over the second half of the book, which added a new perspective to an otherwise well-trodden topic.

like · see review

Feb 27, 2012 Pgf rated it 4 of 5 stars

a must read for anyone in finance, an absolute re-definition of the status quo. that being said, having read it, what good did it do me. his theory on time/space/money has substantially more explanitory value than any/all MBA classes. His prose is adequate, but his compairisons of the nordic coastlines to pricing of stocks is outstanding.

like · see review

Sep 26, 2011 Suresh rated it 4 of 5 stars

if you've read nassim taleb, this is a must read. this book tells you why taleb considers him as his true teacher. in addition to his unravelling the true nature of nature and of the market's randomness, mandebrot's ruminations on the academic publishing world is soothing for those who do original work but face rejects.

like · see review

Jan 08, 2012 Mary rated it 5 of 5 stars

This was a powerful book, as promised by Mr. Blackswan. From now on, the cash is going to be kept in a mayonnaise jar under the -. Really, that wasn't the main point of this book, but rather that folks estimate things wrongly, frequently-except certain elite military operators who constantly face death and try to avoid it.

like · see review

Apr 28, 2012 Ketsugami rated it 3 of 5 stars · review of another edition

Shelves: economics

Interesting, but ultimately unsatisfying. I'm on-board when they poke holes in the standard theory, but they don't offer much to replace it other than generalities. Also too many bits where we're told, "The math is hard, just trust me," which is unhelpful.

like · see review

Jan 28, 2009 Ming rated it 5 of 5 stars

Mandelbrot is a genius... this is perhaps one of the most original piece of work on mapping the behavior of markets I've ever read. (1) volatility clusters (2) trading time does not happen in intervals (3) non-continuity in prices... all COOL!

like · see review

May 17, 2011 Benjamin rated it 5 of 5 stars

I think it's an extremely interesting look at risk and offers a very engaging discussion. The only objection I have is the (implicit?) assumption that risk = volatility which is a common one in finance and one that I frankly don't understand.

like · see review

Apr 28, 2009 Matt rated it 4 of 5 stars

For prose coming from a scientist/mathmatician, this is solid. Provides compelling evidence that the accepted models the modern world uses to assess risk are broken. In nature we find some keys to this misbehavior.

like · see review

Mar 31, 2010 Converse rated it 4 of 5 stars

Shelves: economics, mathematics, non-fiction

Authors propose an alternative description of fianancial markets with greater variation than the normal curve usually used implies. Some hard to follow parts despite authors good efforts to make things clear

like · see review

« previous 1 2 3 4 5 6 7 8 9 … 60 61 next »

new topic
Discuss This Book

There are no discussion topics on this book yet. Be the first to start one »

Recommend it | Stats | Recent status updates

combine
Other Editions (14)

More editions...

Genres

Economics

34 users

Non Fiction

20 users

Business

12 users

Science

10 users

Science > Mathematics

7 users

Philosophy

3 users

Science > Popular Science

2 users

See top shelves...

Readers also enjoyed similar books

About Benoît B. Mandelbrot

Benoît B. Mandelbrot was a French mathematician, best known as the father of fractal geometry. He was Sterling Professor of Mathematical Sciences, Emeritus at Yale University; IBM Fellow Emeritus at the Thomas J. Watson Research Center; and Battelle Fellow at the Pacific Northwest National Laboratory. He was born in Poland, but his family moved to France when he was a child; he was a dual French a...more

More about Benoît B. Mandelbrot...

Books by Benoît B. Mandelbrot

The Fractalist: Memoir of a Scientific Maverick

Fractals and Scaling in Finance: Discontinuity, Concentration, Risk

Fractals and Chaos: The Mandelbrot Set and Beyond

More…

Share This Book

Facebook Twitter Your website

Trivia About The (Mis) Behavio...

No trivia or quizzes yet. Add some now »

title link	preview: The (Mis)Behavior of Markets
avg rating	preview: The (Mis)Behavior of Markets Goodreads rating: 3.98 (838 ratings)
small image	preview: click here [close]
med image	preview: click here [close]
BBCode	[url=http://www.goodreads.com/book/show/665134.The_Mis_Behavior_of_Markets?utm_medium=api&utm_source=blog_book][img]http://d.gr-assets.com/books/1176918291l/665134.jpg[/img][/url] [url=http://www.goodreads.com/book/show/665134.The_Mis_Behavior_of_Markets?utm_medium=api&utm_source=blog_book]The (Mis)Behavior of Markets by Benoît B. Mandelbrot[/url]

The (Mis)Behavior of Markets

Friend Reviews

Community Reviews

Share This Book

Share This Book on Your Website