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# The (Mis)Behavior of Markets

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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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## Community Reviews

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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

Aug 10, 2011
David
rated it
really liked it
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review of another edition

Shelves:
economics,
mathematics

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

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

*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

Read this book, you will not look at the world the same way again.

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

Jan 24, 2019
Romanas
rated it
it was amazing
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review of another edition

Shelves:
0-re-read,
business-and-economics

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

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 ...more

Great companion to Nassim Taleb's books.

"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

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

-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 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 ...more

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 ...more

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 ...more

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 ...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

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 ...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

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

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 ...more

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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.”
—
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“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.”
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