The (Mis)Behavior of Markets
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The (Mis)Behavior of Markets

3.98 of 5 stars 3.98  ·  rating details  ·  1,460 ratings  ·  85 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)
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Duffy Pratt
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
David
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
Ivan Idris
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
David
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
John Tye
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
Emily
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
Philippe Malzieu
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...more
Timothy
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
Terry
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
Bumberings
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
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
Kate
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
Jeffrey
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...more
Ecoute Sauvage
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.
Valerie
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.
Maury
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
Vandita
What is Mandelbrot, THE mathematician who brought 'fractal geometry' in the lexicon of maths, is doing 'dabbling' in explaining financial markets - well, he is beating all the so called financial markets theorists and experts hands down! This book is a beautiful mix of tracing evolution of financial markets theory over the centuries, using the fractal geometry ( without a SINGLE mathematical equation in sight!), and then going on to demolish the efficient market hypothesis, CAPM and the concept...more
Muhammad
Benoit Mandelbrot is a Polish Mathematician more commonly known as the father of Fractal Geometry, an eccentric branch of science that deals with the identification of patterns in everyday lives.

In the (Mis)behavoir of Markets, Mandelbrot attempts to apply theories of fractals onto economic phenomenon like the ups and downs of the stock market. If you look closely, he argues, the charts of stocks and indices is very much a continuous fractal and has bearings that can predicted by the diligent ob...more
Bob Perry
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
Erik Ferragut
Mandelbrot was one of the great thinkers of the 20th century. Best known for his development of fractals, he also had interests in economics and markets. His insights are clear and convincing, but contrary to conventional financial academic wisdom. For example, prices do not move continuously, markets have memory, changes come in bursts, and so on. The book is well written and the descriptions of Bachelier and Levy were worth reading. This is not a book about how to get rich (thank goodness). It...more
Nick Klagge
Fairly disappointing. Mandelbrot is a heretic of computational finance, famous for arguing that movements in stock prices are not well-described by the Normal distribution, but are better described by strange beasts such as the Cauchy distribution, which, while it looks similar to the Normal, is sufficiently strange that both its mean and standard deviation are undefined. He talks about that in this book, and also his efforts to model financial time series using fractal techniques (which he pion...more
Greg Linster
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
Katherine Collins
I only met Prof. Mandelbrot once, at a Santa Fe Institute/CSFB conference, and I remember being astounded that he could explain decades of groundbreaking and highly technical work in just three words: “I study roughness.” This, of course, was the basis of his fractal geometry work (not just work, but invention!), and these concepts were extended to modeling and analysis of financial markets. When I first read this book I underlined almost every paragraph, as I was in the midst of a crisis involv...more
Zachary
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
Justin Tapp

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...more
Alexandra
compelling ideas. left me with more questions than answers. I guess that's good.
It provides an overview of how the market started to be modeled, how the models evolved to the present day and gives some hints on what we might like to consider when creating new models. I liked the examples of analysis provided on cotton prices and other phenomena(like the quantity of water from rain over time and drought).
Jacopo
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
Alec Myres
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
Popup-ch
Should have been required reading before the 2008 crash. (Originally published in 2004.) I'm not saying that he predicted it, but just like Taleb, he showed how far the pendulum can swing.
Brian
This was a marvelous book. I've studied chaos and fractals, and I've studied how the erroneous use of Gaussian statistics in financial markets instead of the more realistic power law statistics ignores the prevalence of black swan events, such as the 2008 mortgage meltdown. This book pulls it all together with a readable and easy to understand style.

The scariest part of this book is how large financial institutions use Gaussian statistics (the bell-shaped curve) for risk management. Such a mista...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
More about Benoît B. Mandelbrot...
The Fractal Geometry of Nature The Fractalist: Memoir of a Scientific Maverick Fractals: Form, chance, and dimension Fractals and Scaling in Finance: Discontinuity, Concentration, Risk. Selecta Volume E Fractals and Chaos: The Mandelbrot Set and Beyond

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