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The (Mis)Behavior of Markets

4.05  ·  Rating details ·  3,992 ratings  ·  200 reviews

Mathematical superstar and inventor of fractal geometry, Benoit Mandelbrot, has spent the past forty years studying the underlying mathematics of space and natural patterns. What many of his followers don't realize is that he has also been watching patterns of market change. In The (Mis)Behavior of Markets, Mandelbrot joins with science journalist and former Wall Street Jo

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Kindle Edition, 368 pages
Published (first published September 18th 1997)
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Duffy Pratt
Aug 17, 2010 rated it really liked it  ·  review of another edition
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
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David
Aug 10, 2011 rated it really liked it  ·  review of another edition
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
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Graeme Rodaughan
A very accessible book by the inventor of Fractals, Benoit B. Mandelbrot.

Read this book, you will not look at the world the same way again.
Emily
Jan 09, 2009 rated it it was ok  ·  review of another edition
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
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Romanas
Benoît Mandelbrot, was a great mathematician, the inventor of fractal geometry. Who can be untouched by the beauty of a Mandelbrot set? Those sets is a manifestation of the vast aesthetic power of math – the langue of nature – or the nature itself as Max Tegmark argues in his book Our Mathematical Universe. Fractal geometry might be the evidence that math is not just a thing that only exists in the brain of humans. Fractals, are one of the great secrets of nature that geniuses like Mandelbrot re ...more
Nick
Jan 22, 2018 rated it it was amazing  ·  review of another edition
Financial markets have a very strange property. One would think they were entirely man-made, about as far removed as you could get from the laws that govern nature. Yet if you look closely enough at the kind of share price charts that you might see online or in newspapers - as Mandelbrot certainly has - you might be in for a surprise.

A trader will tell you that it can be impossible to tell the difference between a daily, weekly or monthly price chart, if the axis labels are removed. This is the
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Philski
Apr 29, 2013 rated it it was amazing  ·  review of another edition
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.
Timothy Warnock
Aug 18, 2012 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).

Mandelbrot's
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Ivan Idris
Feb 08, 2012 rated it it was amazing  ·  review of another edition
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
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Jimmy Ele
May 30, 2015 rated it it was amazing  ·  review of another edition
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
Jaak Ennuste
Jan 29, 2019 rated it really liked it  ·  review of another edition
I can very well see why Taleb considers this as the deepest and most realistic book on finance, since I occasionally felt that I was reading Taleb, not Mandelbrot. It is frightening to read books like these, since you become more and more convinced that what you learned in university was bunk. Financial markets do not follow bell curves, and standard risk measurements are plainly wrong. Markets are much more risky than we make them to be, and lives can be ruined as a result. What to make of this ...more
Valerie
Oct 31, 2012 rated it it was amazing  ·  review of another edition
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.
John Tye
Aug 16, 2011 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
David
Oct 17, 2010 rated it liked it  ·  review of another edition
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
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Terry
Jul 25, 2009 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
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Harsh Gupta
This book tells us that standard financial theory is wrong, price changes are not independent of each other, changes are wilder than the theory assumes and changes are not continuous.

The book is very interesting in parts, some of the explanations are very lucid, but in parts it is repetitive and some the layman explanations of don't make much sense. Overall I enjoyed the book and learned what's wrong with present theories of finance, but to go beyond that I need to learn the actual math used by
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Gumble's Yard
Apr 01, 2017 rated it really liked it  ·  review of another edition
Shelves: 2008
Part biographical popular science book consisting of Mandlebrot’s musing on his works and in particular how they relate to market behaviour.

Although he is clearly opinionated and sure of his own correctness and insight and convinced of his contraryness, he is not as hectoring or smug as Taleb and also more prepared to admit that as of now he cannot turn his work to a definitive investment method beyond simple (but profound) insights into market behaviour.

He stresses simplicity of models and id
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Dennis Littrell
Not as valuable as might be expected

What celebrated mathematician (inventor of fractal geometry and the famous Mandelbrot Sets) Benoit Mandelbrot discovered when analyzing market behavior is that the markets tend to go to extremes. Instead of deviating from an average in a well-mannered linear way (as one might see in a Gaussian bell-shaped distribution) prices tend to rocket up and down according to a power law. In other words the variance in price movements was greater than economists realized
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Arno Mosikyan
Of course, the fundamental cause of the crash was purely human: over-optimism.

But the 2007/8 credit crisis was magnified by a phenomenon new to our generation: an over-confidence in our understanding of markets, as reflected in the industry’s increasingly sophisticated computer models.

We have long had precise measurements and elaborate physical theories for such basic sensations as heat, sound, color, and motion. Until Mandelbrot, we never had a proper theory of the irregular, the rough—all the
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Bumberings
Dec 18, 2010 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
Bob Perry
Feb 13, 2013 rated it it was amazing  ·  review of another edition
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
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J Scott
Nov 14, 2011 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
Kate
Sep 19, 2011 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
Paul Barnes
I thought I knew what this book was about, having read some reviews some years ago. But, prompted by Richard Meadows, I got around to reading it.

This would be the best drilling into the weaknesses of the Efficient Markets Hypothesis (price changes are not independent, are not normally distributed, and are not stationary) that I've read and it is valuable both for the knowledge imparted and the stories told to help make it stick.

It's part biographical and really enjoyable for its coverage of such
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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
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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
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Pelle
Oct 08, 2017 rated it it was amazing  ·  review of another edition
A very interesting book which content is much in line with the books of Nicholas Taleb ("Black Swan", etc.), that financial models are seriously biased by false assumptions and that we are actually very bad at predicting in finance/economy. Unlike Taleb, Mandelbrot describes the problems in a more scientific and calmer way which makes him much more likeable than the aggressive style of Taleb. I highly recommend this book!
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.
Vincent Li
A bit disappointing, but probably one of those books that is a victim of its own success. Perhaps when it was originally written, the views were considered more heretical than they are now. I would recommend that a close reader of taleb's anti-fragile and/or the black swan skip this book since taleb's works rehash the main thesis of Misbehavior (down to the self-aggrandizement, almost every time Fama is mentioned, Mandelbrot claims him as his doctoral student, and Mandelbrot spends a fair amount ...more
Jonathan Birnbaum
Apr 27, 2020 rated it really liked it  ·  review of another edition
A review - or critique - of modern financial theory by Mandelbrot, an intellectual giant who is best known as the mathematician who invented fractal theory. The book is excellent for students of finance and practitioners who want to make sense of markets. The casually interested will find it dry and, certainly not obviously practical to trading or investing.

Modern finance theory is fairly new (compared to, say, geometry) and he hits on the history behind our well-accepted theories of how they c
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Benoît B. Mandelbrot, O.L.H., Ph.D. (Mathematical Sciences, University of Paris, 1952; M.S., Aeronautics, California Institute of Technology, 1949) was a mathematician best known as the father of fractal geometry. He was Sterling Professor Emeritus of Mathematical Sciences at Yale University; IBM Fellow Emeritus at the Thomas J. Watson Research Center; and Battelle Fellow at the Pacific Northwest ...more

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“The brain highlights what it imagines as patterns; it disregards contradictory information. Human nature yearns to see order and hierarchy in the world. It will invent it where it cannot find it.” 8 likes
“For instance, suppose you offer somebody a choice: They can flip a coin to win $200 for heads and nothing for tails, or they can skip the toss and collect $100 immediately. Most people, researchers have found, will take the sure thing. Now alter the game: They can flip a coin to lose $200 for heads and nothing for tails, or they can skip the toss and pay $100 immediately. Most people will take the gamble. To the imagined rational man, the two games are mirror images; the choice to gamble or not should be the same in both. But to a real, irrational man, who feels differently about loss than gain, the two games are very different. The outcomes are different, and sublimely irrational.” 6 likes
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