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The (Mis)Behavior of Markets

really liked it 4.0  ·  Rating Details ·  2,464 Ratings  ·  117 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 September 18th 1997)
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Reminiscences of a Stock Operator by Edwin LefèvrePit Bull by Martin SchwartzThe (Mis)Behavior of Markets by Benoît B. MandelbrotAgainst the Gods by Peter L. BernsteinFooled by Randomness by Nassim Nicholas Taleb
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3rd out of 168 books — 10 voters
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125th out of 237 books — 422 voters

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Duffy Pratt
Aug 23, 2010 Duffy Pratt rated it really liked it
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
Jan 26, 2012 David rated it really liked it
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
Ivan Idris
Feb 08, 2012 Ivan Idris rated it it was amazing
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
Jan 27, 2009 Emily rated it it was ok
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
Oct 31, 2012 Valerie rated it it was amazing
Shelves: math
I read this several years ago, and I enjoyed it very much. I wish I could find my copy, but I loaned it to a former student, and never saw it again.
Jimmy Ele
Dec 20, 2015 Jimmy Ele rated it it was amazing
Shelves: favorites
The reason for it garnering a 5 star rating is not due to it's literary merit. This is not a novel, but a scientific book written for the layman. I loved it for the way that (when I had finished reading certain chapters) it helped me to visualize nature as an expression of a fractal/chaos set (known as a Mandelbrot set). Whereas before, whenever I went for a walk and looked up into the sky I would just see chaotic assemblies of clouds and leaf growth, now I am seeing some of the haunting images ...more
Oct 17, 2010 David rated it liked it
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
John Tye
Aug 20, 2011 John Tye rated it really liked it  ·  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
Philippe Malzieu
Feb 28, 2014 Philippe Malzieu rated it it was amazing
Mandelbrot is one of the fathers of the theory of chaos. It is attractive intellectually but also by its possible applications. In medicine the lung for example is a fractal object. After the crisis of 2008, I wondered why one could not envisage occurred to them.
I discovered that the last book of Mandelbrot was precisely devoted to this problem. Mandelbrot proposes to modify the econometric algorythmes used by the banks. Those would be responsible amplify the disorders.
It is a difficult work. I
Aug 19, 2012 Timothy rated it it was amazing  ·  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).

Jul 25, 2009 Terry rated it really liked it  ·  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
Mar 26, 2011 Bumberings rated it really liked it  ·  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
J Scott Shipman
Nov 16, 2011 J Scott Shipman rated it really liked it  ·  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
Sep 23, 2011 Kate rated it liked it  ·  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
Bob Perry
Apr 03, 2013 Bob Perry rated it it was amazing
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
Justin Tapp
Jun 12, 2014 Justin Tapp rated it really liked it

Mandelbrot is the "father of fractal geometry." He's a mathematician who has spent much of his career looking at prices and markets. He argues pretty forcefully that any of the risk management techniques used by Wall Street are based on false assumptions and have been proven to fail time and again.

Mandelbrot is Nassim Taleb's mentor. I've gotten to the point where I wonder if, as a Christian, I can still teach economic orthodoxy (much less finance classes like risk management) with a clear consc
Assaf Lavie
Jan 28, 2016 Assaf Lavie rated it really liked it
I really liked this book, and I feel I may read it again.
It's very much like Black Swan, in ways, though it's obviously a precursor. I'd say it's Black Swan without the profanity and vanity. :)
The first half is illuminating. It discusses how exactly modern finance theory is based on flawed assumptions of the market, and how, as a result, risk assessment - the kind done by banks and brokers - is nonsense. He then explains how his sort of math (power laws, fractals, etc.) present a much better mo
Andrew Canfield
What a fascinating read. Mandelbrot is clearly an expert in his field of fractal and multifractal math, and the way he relays this in a readable fashion in superb. The manner in which he applies it to modern finance and stock market moves is intriguing, although I would have to do more research and reading prior to reaching any firm conclusions on his theories.

Mandelbrot essentially tells his readers that the stock market is even more volatile than people realize, and that the advent of faster
Aug 21, 2014 Chanania rated it really liked it
In a line: Very informative but unnecessarily repetitive.

The following quote by Laurence J. Peter (slightly modified to better reflect reality) is one of my favourites:
An economist is an expert who can tell you tomorrow why the things he predicted yesterday didn't happen today.

There are many people who will dismiss such an observation out of hand. "Economists are experts", they say. "Look at the successes of the banks, brokerage firms, investment management companies, etc." When you ask them to
Alex Cook
Jul 11, 2015 Alex Cook rated it really liked it  ·  review of another edition
Good read. Cuts through a lot of the BS of modern portfolio theory that I already flushed based on personal experience as well as by studying others (Taleb, David Einhorn, etc.). In the same way that behavioral finance theory uses psychology to explain market inefficiencies, Mandelbrot uses math--but that the same time, he makes it accessible and not overly technical, which I appreciated. The only reason why I gave it 4/5 instead of 5/5 is the book seems...incomplete. Yes, markets are not perfec ...more
Alessandro Veneri
Jul 12, 2016 Alessandro Veneri rated it really liked it
My little, humble research for the role of randomness in financial markets has just begun, thanks to Taleb's works. I found much of his most general assertions are grounded in fat-tail distributions, long-term dependences and high markets' turbulence, as shown by Mandelbrot in the book.
Mandelbrot does not propose his fascinating multi-fractal theory as a money-machine, nor does he hide the need to research much deeply, as his approach to financial theory has just been established.
The meat of the
Mikko Saari
Jul 04, 2016 Mikko Saari rated it really liked it  ·  review of another edition
This was an interesting explanation on how the markets are wilder than generally assumed. I was aware that a large part of the financial theory is pretty much bogus; this explained one reason why that is the case.

Looking at the mess of Brexit is yet another reason to believe Mandelbrot is very much correct. What bell curve forecast could've predicted something this bizarre? But this cluster of odd happenings that have strong effects on markets is pretty much exactly the behaviour Mandelbrot's fr
Egli Papadopoulou
May 24, 2015 Egli Papadopoulou rated it liked it
Shelves: maths
2004 version, Mandelbrot is still egocentric like L.Friedman. Personally I believe that the content is good, and interesting. Every sentence starts off with how talented he is and how he sees the world. Too much ego and self importance. .. 'meh' - I wish this book was more about his ideas.

Furhtermore the book explains the markets and why they aren not 'brownian'(suspended particles to the stock market) and how fractals can be used to represent trade/market.
He is also using the terms / sharpe r
Feb 09, 2014 Jeffrey rated it it was amazing
An extremely interesting account of finance from Mandelbrot who has a non-scientific background.

The book is divided into 3 sections. First, Mandelbrot gives an account of financial theory and outlines its flaws. Second, he provides his own insights. These were interesting in that I think they gave a more numerically analytic explanation to fat tails, namely he provides a mathematical model that explains fat tails (which have been pointed out by others such as Taleb, who provide a more psychologi
Robert Karl
Nov 28, 2015 Robert Karl rated it it was amazing  ·  review of another edition
Recommends it for: Anyone who has a 401k or invests in markets of any kind.
Recommended to Robert by: Nassim Nicholas Taleb
Shelves: have-hardcopy
In a few words: markets are fractal.

Absolutely a must-read, although Mandle Bro falls victim to the narrative fallacy (he thinks that everything that happens in academia has a cause and effect, see his reverence for Bachelier.

Mandle Bro's ten heresies of finance:

1) Markets Are Turbulent
2) Markets Are Very, Very Risky
3) Market "Timing" Matters Greatly
4) Prices Often Leap, Not Glide
5) In Markets Time Is Flexible
6) Markets in All Places and Ages Work Alike.
7) Markets Are Inherently Uncertain, and B
Ecoute Sauvage
Feb 13, 2013 Ecoute Sauvage rated it liked it
Benoît Mandelbrot is a legend but saying that his theories have been ignored by the finance theorists and modelers just ain't so. A good introduction for those who don't know much about the subject.
Mark Speed
Feb 01, 2015 Mark Speed rated it really liked it
Shelves: economics
I'm in two minds about this book. On the one hand it was a fairly decent explanation of the chaotic nature of markets and how they work (and don't work). On the other, it was a discussion of how fractal theory was developed. So it's really about the development and application of fractal theory in markets. If you're expecting a 'how-to' book you'll be disappointed. I'd have loved more worked examples. There are probably more accessible texts by other people on markets, but Mandelbrot undoubtedly ...more
Feb 08, 2015 Svetlana rated it really liked it
It's hard for me to rate this book. It covers interesting and useful stuff in principle but most of what is described in the first half of the book - how the main underlying assumptions of modern finance theory are wrong I have already read and glimpsed from other books and articles before.
The second half of the book is more interesting but there is too much diversion into other stuff (the whole bit about the Nile was I thought unnecessary long) and it probably was simplified a tad too much. No
Michal Palczewski
Feb 28, 2015 Michal Palczewski rated it really liked it
A book about the statistical properties of markets. Contrary to some of the theory used markets are not continuous nor normally distributed. This book attempts to create a mathematical framework for modeling stock market behavior. While he does a better job then gausian theory, Mandelbrot seems to suffer from a man with a hammer syndrome. He invented fractal geometry and now tries to apply it to everything. He is convincing about power laws, and fat tails, but less so about scale invariance. Ove ...more
Mar 28, 2014 Maury rated it really liked it
Mandelbrot's criticism of modern financial orthodoxy, developed over many years, is devastating. After reading his lucid explanations, one wonders how financial markets can persist in collective delusion. Less impressive is the fact that Mandelbrot's "multifractal" substitute for the Efficient Market Hypothesis really offers few practical tools for analyzing markets -- with the notable exception of apparently better ways of measuring risk. One is reminded of Marx's writing, which offers a devast ...more
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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
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“In the 1960's, some old-timers on Wall Street-the men who remembered the trauma of the 1929 Crash and the Great Depression-gave me a warning: "When we fade from this business, something will be lost. That is the memory of 1929." Because of that personal recollection, they said, they acted with more caution, than they otherwise might. Collectively, their generation provided an in-built brake on the wildest form of speculation, an insurance policy against financial excess and consequent catastrophe. Their memories provided a practical form of long-term dependence in the financial markets. Is it any wonder that in 1987 when most of those men were gone and their wisdom forgotten, the market encountered its first crash in nearly sixty years? Or that, two decades later, we would see the biggest bull market, and the worst bear market, in generations? Yet standard financial theory holds that, in modeling markets, all that matters is today's news and the expectations of tomorrow's news.” 0 likes
“If you are going to use probability to model a financial market, then you had better use the right kind of probability. Real markets are wild. Their price fluctuations can be hair-raising-far greater and more damaging than the mild variations of orthodox finance. That means that individual stocks and currencies are riskier than normally assumed. It means that stock portfolios are being put together incorrectly; far from managing risk, they may be magnifying it. It means that some trading strategies are misguided, and options mis-priced. Anywhere the bell-curve assumption enters the financial calculations, an error can come out.” 0 likes
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