The Physics of Wall Street: A Brief History of Predicting the Unpredictable

Front Cover
Houghton Mifflin Harcourt, 2013 - Business & Economics - 286 pages
1 Review
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. While many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, a special breed of physicists has a much deeper history of revolutionizing finance. Taking us from fin-de-siècle Paris to Rat Pack-era Las Vegas, from wartime government labsto Yippie communes on the Pacific coast, Weatherall shows how physicists successfully brought their science to bear on some of the thorniest problems in economics, from options pricing to bubbles.

The crisis was partly a failure of mathematical modeling. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Models—whether in science or 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 use a model designed for earthquakes to predict a massive stock market crash. We discover a physicist-run hedge fund that earned 2,478.6% over the course of the 1990s. And we see 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 is riveting history that will change how we think about our economic future.
 

What people are saying - Write a review

The Physics of Wall Street: A Brief History of Predicting the Unpredictable

User Review  - Sara Holder - Book Verdict

As promised in his title, Weatherall (logic & philosophy of science, Univ. of California, Irvine) charts here the relationship between physics and financial markets. Inspired by coverage of the 2008 ... Read full review

Contents

1 Primordial Seeds
1
2 Swimming Upstream
25
3 From Coastlines to Cotton Prices
49
4 Beating the Dealer
76
5 Physics Hits the Street
105
6 The Prediction Company
130
7 Tyranny of the Dragon King
159
8 A New Manhattan Project
181
Send Physics Math and Money
205
Back Flap
287
Back Cover
288
Spine
289
Copyright

Other editions - View all

Common terms and phrases

About the author (2013)

JAMES OWEN WEATHERALL is a physicist, philosopher, and mathematician. He holds graduate degrees from Harvard, the Stevens Institute of Technology, and the University of California, Irvine, where is presently an assistant professor of logic and philosophy of science. He has written for Slate and Scientific American.

Bibliographic information