The Physics of Wall Street
A Brief History of Predicting the Unpredictable
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- $16.99
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- $16.99
Publisher Description
After the economic meltdown of 2008, Warren Buffett famously warned, ‘Beware of geeks bearing formulas.’ But as James Weatherall demonstrates, not all geeks are created equal. Taking us from fin-de-siècle Paris to Rat Pack–era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how a special breed of physicists successfully brought their science to bear on some of the thorniest problems in economics.
While the crisis was partly a failure of mathematical modelling, it was even more a failure of some financial institutions to think like physicists. Models — whether in science or in finance — have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn’t understand their purpose, and didn’t care. It was a catastrophic misuse of science.
The solution, however, is not to give up on models; it’s to make them better. Weatherall reveals the people and ideas on the cusp of a new era in finance. We see a geophysicist predict a massive stock-market crash by using a model designed for earthquakes. We learn about a physicist-run hedge fund that earned 2478.6% over the course of the 1990s. And we discover how an obscure idea from quantum theory might soon be used to create a far more accurate consumer price index.
Both persuasive and accessible, The Physics of Wall Street will change how we think about our economic future.
PUBLISHERS WEEKLY
UC-Irvine professor Weatherall looks at the role played by physicists and their ideas in financial markets, and argues persuasively that their contributions should be more widely used and recognized. Himself a physicist, philosopher, and mathematician, Weatherall suggests that the profession's essential contribution to finance is to develop models of how financial markets operate using insights from science. Answering the concerns of skeptics like Warren Buffett, he cautions that physicists approach their models simply as useful tools, and that the 2008 Wall Street crisis partly reflects financiers' difficulty in appreciating that models offer only a simplified representation of reality. Though this book is hardly beach reading, even laymen can enjoy Weatherall's sketches of eccentric theoreticians and his examples of unexpected patterns gleaned from such unrelated fields as the study of migratory salmon and the discovery of nylon. Weatherall also adeptly simplifies information for the uninitiated, for example, illustrating chaos theory by discussing the behavior of gas particles and ants. Finally, Weatherall acknowledges that no single unified law can fully cover the ever-evolving nature of markets. While all attempts to divine the future smack a little of the Delphic oracle, anyone interested in how markets work will appreciate this serious hypothesis.
