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# The (Mis)Behavior of Markets

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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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

*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

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

*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

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

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

"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

-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

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...more

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

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

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

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

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

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

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).

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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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