For Book Lovers
I don't review books I don't like!
*****= An all-time favorite
**** = Outstanding
= Above average
= Good, with reservations
**The (Mis)behavior of Markets
A Fractal View of Risk, Ruin, and Reward
by Benoit Mandelbrot and Richard L. Hudson
Reviewed November 18, 2004.
Basic Books, New York, 2004. 328 pages.
I was a math major in college, so I’ve heard of fractals, and I’d heard
the name Mandelbrot. Those two things on the cover of the book were
enough to make me curious enough to read it, even though I’m not terribly
interested in the stock market.
From the outset, Mandelbrot claims that standard financial theories about
the stock market are wrong. He claims that models based on the bell
curve simply don’t match reality and are seriously underestimating the
risk involved. In this book, he presents his theory. He makes
no claims that it is fully developed and can make you money. But he
does provide a nice foundation for further work.
He makes the following disclaimer in his introductory chapter:
“This book will not make you rich. . . . If it fits any genre, it
is that of popular science. It explains a new, and important, way
of looking at the world—in this case, the financial world. It attempts
to do so using common English, with as few formulae and as little mathematical
jargon as possible—or at least, with no jargon unexplained. That is
because I aim to stimulate broader debate about financial-market modeling.”
I can’t really tell you if the authors succeeded in writing a popular
science book. I like mathematics, especially statistics, so I found
the explanations of current financial theory and how fractals can make a
new theory very interesting. I think that if you don’t like math, a
strong interest in the stock market might get you through this book.
He does present some conclusions at the end, in the form of “Ten Heresies
of Finance.” Although knowing these principles won’t make you rich,
they should make you a wiser investor. He also talks about areas
where more work is being done.
I think of a popular science book as something almost anyone would enjoy
reading. I think this book is better for those with an interest in
math or an interest in finance or both. However, those people will
find a well-written, new approach to an important topic.
Copyright © 2004 Sondra Eklund.
All rights reserved.
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