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The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward [Paperback]

Benoit B. Mandelbrot , Richard L. Hudson
4.1 out of 5 stars  See all reviews (37 customer reviews)
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Book Description

6 Nov 2008
This international bestseller, which foreshadowed a market crash, explains why it could happen again if we don't act now. Fractal geometry is the mathematics of roughness: how to reduce the outline of a jagged leaf or static in a computer connection to a few simple mathematical properties. With his fractal tools, Mandelbrot has got to the bottom of how financial markets really work. He finds they have a shifting sense of time and wild behaviour that makes them volatile, dangerous - and beautiful. In his models, the complex gyrations of the FTSE 100 and exchange rates can be reduced to straightforward formulae that yield a much more accurate description of the risks involved.

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The (Mis)Behaviour of Markets: A Fractal View of Risk, Ruin and Reward + Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets + Antifragile: Things that Gain from Disorder
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Product details

  • Paperback: 352 pages
  • Publisher: Profile Books (6 Nov 2008)
  • Language: English
  • ISBN-10: 1846682622
  • ISBN-13: 978-1846682629
  • Product Dimensions: 2.3 x 13.1 x 19.4 cm
  • Average Customer Review: 4.1 out of 5 stars  See all reviews (37 customer reviews)
  • Amazon Bestsellers Rank: 110,302 in Books (See Top 100 in Books)

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Review

Mandelbrot is acknowledged as the father of chaos theory ... he is, simply, very clever indeed. (Sunday Telegraph)

The reader gets a clear picture of the history of finance theory ... the best financial read (Financial Times)

Entertainingly written ... this book is a brain-opener that adds hugely to our sum of knowledge. (Director)

Book Description

Benoit Mandelbrot, father of fractal geometry, revolutionised our understanding of the models of modern financial theory. This new edition includes material on the current market crisis, calling for an end to the tunnel vision of our bankers whose over-confidence in their understanding of markets ended in catastrophe.

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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews

Most Helpful Customer Reviews
15 of 15 people found the following review helpful
4.0 out of 5 stars ...with tangerine trees and marmalade skies... 8 July 2006
Format:Paperback
Orthodox economics is very formal using complex models to predict future behaviour. Most economists, like meteorologists, are not held accountable for their predictions.

Within the very wide field of economics there are many conflicting views about the nature of economics and there is much in the way of interesting work going on out there and I would cite the contributions of the Austrian school and the evolutionary school and especially point to the very accessible work of Paul Ormerod who give somewhat different views to those of the standard model.

This book is not aimed at those practitioners of economics or indeed the professionals of the City of London or Wall Street. To my mind, as an interested observer, Mandelbrot and Hudson are doing all of us a service in illuminating the gaps in economic theory that underpins the financial industry. John Maynard Keynes, who's General Theory of Employment, Interest and Money (1936)can be said to lie at the heart of much of contemporary economic theory, once famously compared the financial services industry to gambling, also made his fortune on the stock market.

The book methodically disects each of the pillars of contemporary financial theory and exposes it's weakness then introduces some basic fractal geometry ideas to exhibit their apparent ly better predictive use. As someone who favours the approach of ideas of chaos theory into the economics brew I tend to be more open to the approach that Mandelbrot uses but the proof of the pudding, as we say in England, lies in the eating and this populist text is certainly not the place for complex technical proofs or highly mathematical analysis.
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68 of 72 people found the following review helpful
4.0 out of 5 stars Necessary evil 16 May 2006
Format:Paperback
If you invited Benoit Mandelbrot to your party, he'd be the geeky guy dissing people's illogical clothing, drinking too much punch, testing the aerodynamics of different canapes, and pouring food colouring in the pool. In other words, he's a risk and he won't get any girls, but on a balance of probabilities, the party Mandelbrot was at will be the one people will wish they'd been at.

This book is a rant, reflecting the death of editing in favour of celebrity authorship. So it's repetitive. It's also light on theory, and it repeats itself. But that doesn't mean it's wrong. Mandelbrot makes the case early on that the behaviour of market prices, or of any variable not constrained by physics, are not normally distributed. He then goes on to claim that artificial systems are non-Gaussian, putting them outside the reach of statistics - and by extension, outside the reach of CAPM, Black-Scholes, VAR, and GARCH. He proposes power law distributions as an alternative. He's probably right, but he never demonstrates this claim, and the alternative he suggests - multifractals - is, by his own admission, not very useful.

He comprehensively demolishes the random walk model, claiming to have demonstrated that volatility clusters, and that there is memory in all markets. This may be true, but it will have the effect of encouraging snake oil salesmen (see below).

More pertinent and scary is that Mandelbrot does show that the exponents needed to model power law distributions for different markets or instruments are so diverse and intractable as to make general market models meaningless. He does not explain how multifractals address this.
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29 of 31 people found the following review helpful
4.0 out of 5 stars Revolutionary theory, but hard to apply 13 Oct 2004
Format:Hardcover|Verified Purchase
"This volume," writes Richard Hudson in his introduction to The Misbehavior of Markets, "will not make you richer ... but it may prevent you from getting poorer."
Benoit Mandelbrot is universally familiar as the father of fractal geometry and the discoverer of the eponymous Mandelbrot set - "named after me by my colleagues," as he bashfully admits - and in a long and maverick career has turned his attention to just about every subject from turbulent systems to CGI. Now in this, his latest work, he condenses his economics writings into a highly readable form for the layman. Markets, says Mandelbrot, do not obey the simple Gaussian curve (think of a man tossing a coin over and over, each flip independent of the last) which has provided the basis for the most academically respectable models of the last century. Price changes are not continuous. There is no such thing as objective value. Disastrous, impossible, Rosencrantz-and-Guildenstern type runs can, and do, occur. Charts of price changes over the course of a hundred years look very similar to changes over a day, if you remove the indices; the man who tells you to invest your money long-term with a view to reducing risk is doing you no favours. What's more, fund-managers already tacitly acknowledge some of the truth of this, and although they may learn the theory at business school, nobody rigorously applies it for long in practice.
Where Mandelbrot shines is in making a potentially forbidding subject highly accessible; in his discursive, entertaining style, in his constant use of visuals to elucidate price movements and models and the satisfyingly chewy mathematics of fractal dimension.
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Most Recent Customer Reviews
5.0 out of 5 stars Reads Smoothly
Awesome overview of Mandelbrot's "philosophy" on probability in financial markets and nature. Got me hooked up, will also buy the four "selecta's" (opera omnia).
Published 18 days ago by Gabriele Giuseppini
4.0 out of 5 stars A primer for fractal analysis of financial markets
This book is fascinating and enjoyable. It pushes the reader to consider that most financial models are too simple or otherwise wrong. Read more
Published 3 months ago by Edward A. Thomson
4.0 out of 5 stars Very interesting
If you're inclined to find discussion of how economics and markets work interesting then this is definitely worth a read. Read more
Published 5 months ago by Jeff
5.0 out of 5 stars Complex theory made into an accessible and enjoyable read
Richard Hudson has worked with Benoit Mandelbrot to produce an enjoyable and comprehensible synthesis of the latter's ideas. Highly recommended!
Published 7 months ago by Will Doch
4.0 out of 5 stars Recommendation
This book is a must. Economists, particularly of the Kenysian mode, simply use a false math. Mandelbrot and his math of "chaos" offers a different views. Read more
Published 9 months ago by Prof. Dr. Dr. Dr. L. P. Wessell
5.0 out of 5 stars A great introduction to fractals
Mandelbrot places the reader in front row seats as he takes them on a journey starting with the early development of the theories behind today's capital markets models. Read more
Published 9 months ago by Jason Broomer
4.0 out of 5 stars Interesting
Some interesting ideas but shame he doesn't offer any solutions. Needs a follow up to try and sort out people who think they have got markets sussed.
Published 10 months ago by Mac
4.0 out of 5 stars Worth a read
Any finance professional will find much food for thought in this book. Mandelbrot re-frames the topic of risk and points to fundamental flaws in the current standard paradigm. Read more
Published 13 months ago by Vauxhall Hoosier
5.0 out of 5 stars An interesting angle and so much better than many market approaches
This book avoids the cardinal sin of interaction with markets, which is to start with a preconception, and build a model which reinforces that preconception. Read more
Published 14 months ago by Richard Greenwood
4.0 out of 5 stars A great layman's view of the use of fractals in economics
Simple explanations of key concepts illustrated clearly in diagrammatic form. A great introduction to the subject for someone not familiar with the topic,
Published 14 months ago by Charles
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