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on 25 May 2013
As a financial market professional who has been trying to forecast economies and markets for much of the past quarter century, I can heartily recommend Forecast to anyone who wants to think about how economies and financial markets actually work, rather than just accepting the conventional wisdom about how economists believe that they should work.
"Forecast" follows on from Buchanan’s earlier book "Ubiquity" by showing how financial markets follow the same type “power laws” that are found in natural events, such as earthquakes and extreme weather, rather than the well behaved distributions assumed by classical economic analysis.
The key issue Buchanan has with modern economics is its reliance on the concept of “equilibrium”. Whether this concept is based on the DGSE approach of Arrow-Debreu, or the Rational Expectations approach of Lucas and Sargent, it does not correspond to empirical reality. Markets rarely appear to be in any kind of stable equilibrium and the work of Kahneman and others shows that market participants tend to be far from the rational beings assumed in the economic models!
What Buchanan does very well is to bring together the work from other fields, which have already had to grapple with phenomena which are both complex and dynamic, notably nuclear physics and the world of meteorology.
He uses the history of these disciplines to show how simpler models of the origins of dynamic processes might help model complex interactions of agents more adequately than the detailed, mathematically elegant, but fundamentally flawed, models of conventional economics.
Buchanan’s most important contribution is to highlight how adaptive learning models which have positive feedback loops at their core might provide a much more likely route to understanding the dynamics of financial markets and how such models can replicate events such as the flash crash. An important message for market participants and policy makers alike is the way that these models show that high frequency trading, low volatility and leverage can interact to provide a dangerous cocktail which can readily result in unstable dynamic processes, where crashes are triggered seemingly out of nowhere.
A brief review such as this cannot do justice to a book that is as broad as "Forecast" in its ambition and multidisciplinary approach. While some might prefer more technical detail on various approaches or models, the comprehensive notes allow the interested reader (with the technical skills) to follow-up the original sources with their own research.
In summary therefore, this is an important and challenging book. It is not so much a book about forecasting economies or financial markets per se, rather it is a book about how economics and the forecasting models that the economists of the future might employ, could develop.
Buchanan’s message is clear…if policy makers remain mired in the world of conventional economic models, their efforts to understand the complex interactions of the real economy, financial systems and financial markets will likely result in failure. If, however, they embrace a broader approach, based in a more multidisciplinary framework which seeks to understand reality, rather than being built on elegant, but false, economic assumptions of equilibrium, there is some hope that we will find greater understanding of the processes drive markets to have similar characteristics to other complex natural process such as weather patterns and earthquakes! We had all better live in hope...

Ian H
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on 13 May 2013
I firmly believe that this book should be read by anyone with anything more than a passing interest in finance. Whilst not spectacularly detailed in places, this book introduces a number of models and ways of thinking about the markets that should form part of the modern understanding of how things work. This book steers away from many of the older economic theories and introduces aspects of chaos theory and weather modelling as the new 'science' of finance.

This books does have flaws (hence the 4 stars). In some places it tries to over simplify and in others it tends towards the dogmatic approach that it otherwise scorns. There is certainly an air of superiority in parts of the writing and this can undermine the argument.

As a finance professional this is definitely a book I will be encouraging others to read. I would also advise people read 'Chaos: Making a New Science' should they wish to form a greater understanding (although still in a very digestible popular science format) of the topics discussion in 'Forecast'.
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on 23 May 2013
Unknown to the rest of the world, economists have been labouring under a misconception of biblical proportions--that the economy always lies in a state of soporific equilibrium. That's like meteorologists believing that the average annual temperature is all there is to weather forecasting. In 2008, the limitations of this approach were cruelly exposed with the near collapse of the banking system--the equivalent of a hurricane raging through the global economy and an event that left bewildered economists scratching their heads in disbelief. In Forecast, Mark Buchanan skillfully explains the limitations of the traditional approach to economics and the wilful blindness of the economists who propound it. He also shows how a new approach based on ideas from physics should help us understand how economic instabilities occur and how best to avoid them. We'll never be free of the storms that sweep through economies but we can certainly learn how to avoid making them worse. An important book that will change the way you think about economics.
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on 16 February 2014
Physics in economics is a popular topic on the blogosphere nowadays so I thought this book would give me some insights on specific linkages but what is discussed from the economics shows a lack of understanding of the theory and the natural sciences angle seems random with a failure to make links on why its applicable. Economic theory has been around for awhile and the majority of the micro models make good predictions, and he discusses financial markets as if they are the only kind of market and draws terrible generalizations.

This book does have two interesting passages which are on topic, one on high frequency trading, and another on players and learning. Though on the latter it does little more than summarize some genuinely interesting research without properly discussing its applicability to liquidity and how much money each player controls.
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on 29 April 2013
I always have a feeling of trepidation about buying a new book. Will it be worth the time to read it? Or will it be facile, opinionated pap? Actually, this book was well worth my precious time. Well researched, structured and written. I'm better educated than most and already have a good laypersons' knowledge of physics and economics, but this book taught me a lot. It does a good job at making conventional economic theory look I'll conceived and a pretence for real science. I recommend it highly.
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on 28 May 2013
I came across the book at the local bookshop. Having read through half of it, I believe this book ought to be read by everyone who are more than curious about how financial investment decisions are made and want to understand the pitfalls underlying the paradigm within the current investment/trading industry. Although arguments to draw parallels between economic and other dynamic systems where forecasting highly probable events is critical is not new, the author in this book explains these in quite comprehensible and yet concise diction. I would highly recommend the book to everyone who works or is interested in learning about financial markets and trading, not least the quant community of financial trading world.
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on 9 May 2013
This book bridges the gap between Economics and Physics. It should be read by everyone and particulary those with an interest in either discipline. One hopes that the Economists will recognise the connections so clearly demonstrated and the benefits which will follow when they incorporate established physical principles into their thinking.
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on 24 February 2015
A very interesting book, mainly about some of the background to wild swings in stock market indices among other things. More about the difficulty in forecasting such things.
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on 18 June 2014
Well researched, balanced, realistic & practical!

Should be read by those in business, government & social science academia.

OJ Physicist
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on 28 November 2013
I like it. The book is tray to depict the different approaches that was invented with aim to predict the finance market in human language
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