Complexity, Risk, and Financial Markets (Wiley Investment) - Softcover

Peters, Edgar E.

Softcover

ISBN 10: 0471399817 ISBN 13: 9780471399810

Verlag: Wiley, 2001

Inhaltsangabe

Patterns in the Dark is that rare book that offers an entirely new perspective on an issue of ongoing concern to investors: the unpredictability of financial markets. In this groundbreaking work, leading investment strategist and authority on chaos theory, Edgar Peters makes accessible ways of understanding market behavior that-until now-were known only to specialists.

Patterns in the Dark draws on a broad range of human knowledge and experience to clarify the behavior of a system that now operates on a global, 24-hour, and thoroughly interconnected basis. Peters illuminates the complex operation of the marketplace by including keen observations drawn from science, mathematics, and artistic creation as well as economics. His models include the social visions of the Austrian economists, Darwinian ideas of evolution, the laws of physics, and the creative risks of the artist. His meditations on financial markets weigh the effects of limitations vs. rules, risks vs. uncertainty, and order vs. chaos.

As a guide to a world marketplace that has become increasingly complex and uncertain, Patterns in the Dark offers the investor a rich source of insight, illumination, and wisdom.

Über diesen Titel

Über die Autorin bzw. den Autor

EDGAR E. PETERS is Chief Investment Strategist and Director of Systematic Asset Allocation for PanAgora Asset Management, a global investment management firm. He is a frequent lecturer on market theory and has taught investment and portfolio management at Babson College, Boston College, and Bentley College. He is the author of Chaos and Order in the Capital Markets and Fractal Market Analysis, as well as numerous articles in professional journals.

Von der hinteren Coverseite

Praise for complexity, risk, and financial markets

"A fascinating account of one of today's great paradoxes: the irreducible uncertainty that lies at the heart of social and economic order. Ed Peters takes our most cherished beliefs, turns them upside down, and convinces us that they're much better that way."- Ian Stewart, author of Does God Play Dice and columnist for Scientific American

"Is it any wonder why smart traders love volatility, while amateurs shun it? It's because smart traders understand complexity theory. And with the help of Peters' book, you may too!"- Desmond MacRae, The Street.com

"In reading previous contributions to the work of complexity and chaos theory, it's obvious that the forerunners in these fields have been running too fast for the average reader...Peters knows what he is talking about and has done his homework, which makes this a good starting point for gaining insight into an economic paradigm shift bound to take place...[this book] is the real deal about complexity and chaos."- Thomas Stridsman, Futures Magazine

"...Peters always seems to provide compelling insight into how global structure and local randomness interact...the discussions regarding various process models and their implications for economic activity are worth the price of admission alone. Interested investors ought to check it out."- Alex Schay, The Motley Fool.com

Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.

1. Introduction

Life is uncertain. We can be certain of that. Every day, we are faced with unpredictable events. Some are large. Most are small. Uncertainty makes us uneasy, nervous about the future. Uncertainty is bad. We spend time preparing for uncertainty so we are not "blindsided" or "caught off guard."

Humans have long tried to ease uncertainty by predicting the future. Early predictions were attempted through supernatural means. More recently, scientific methods have been used. Science has helped, but because some uncertainty always remains, supernatural means continue to be used, even though most of us know that they are not valid. Horoscopes, for instance, are still published in the newspapers and are widely consulted. We have a deep wish, a deep need to increase the predictability, the order of our lives. We continue to search for ways to reduce uncertainty-and the risk that we perceive accompanying it.

Yet, we know that risk taking is the only way to achieve success. The most profitable routes, both personally and professionally, are usually the risky ones. Heroes, whether they are soldiers, explorers, scientists, artists, or writers, are people who take advantage of those opportunities. By taking risks, great battles are won-in war, in the university, and in the marketplace. Risk taking advances our culture, our knowledge, and our wealth. Risk taking also breeds innovation and growth.

Here, we reach the paradox of risk and uncertainty. On the one hand, risk is something to be minimized-or even eliminated if possible. At the same time, taking a risk, or using uncertainty to our advantage, brings opportunity and advancement. Risk and uncertainty are synonymous, yet both can be good or bad. We fear risk and uncertainty, even as we know we need them.

Part of the problem is a perception that uncertainty and risk are synonymous. Are they? Risk is tied to the possibility of loss, like gambling. Uncertainty, on the other hand, is merely the unknown; loss is not always involved. Yet, uncertainty makes us more uneasy than when we face a situation that has known risks. This anxiety is bred into us. If you sit in a room in your own house, in the dark, you will feel uneasy. Despite the fact that you know all of the objects in the room and where they are placed, you imagine that other things are in those objects. They become vague shapes, patterns in the dark. We need to face this anxiety and accept intellectually that there is nothing to be afraid of. The uncertainty we face in the dark has no real risk, just perceived risk, because we do not know, for sure, what's out there. We desire an order, or perfect knowledge, that comes only when we turn on the lights. In the dark, there is no order. There is only the hope of order in the midst of uncertainty. In real life, of course, we are always "sitting in the dark," trying to guess at how things would look if we could "turn on the lights." We try to impose this order, even if there is no proof that order exists. We need order even as we extol risk taking.

So, we are torn between these two needs: the need for order, and the need for uncertainty. The urge to bring order and safety usually wins out. Yet, we need uncertainty; without it, we become stagnant and unmotivated. Leninist Communism is one example of how too much order, too much control, took the life out of a system, which then lost its ability to innovate and adapt. The lack of competition reduced the ability of the communist economy to adapt to new conditions, and, as we all know, adaptability is the key to survivorship.

We are not only afraid of being in the dark, we are also suspicious of being kept in the dark. We often feel that the universe has a hidden order that we cannot quite comprehend. In ancient times, this order was attributed to the gods-omnipotent beings who controlled humans' fates. Greek myths in particular portrayed humans as pawns in the great games played by the gods. More recently, there are suspicions of global conspiracies. These conspiracies are cited for events that are too important to be random. We no longer describe them as "acts of God," so they must be the work of other people-people who are hiding their influence over us, covering up their involvement. They are keeping the rest of us in the dark. Among the events attributed to these people are political assassinations and UFO sightings. Examining these events in minute detail results in a long list of "coincidences" which, in the minds of the conspiracy buffs, are too numerous to be truly random. There must be a central planner who is at the hub of a sinister form of order. No one admits to the conspiracy, so there must be a cover-up. Better to think that we are all being kept in the dark by sinister forces than to admit that there is no order. Yet, as we shall see, order can erupt spontaneously, without a central planner. This spontaneous order, which evolves from complexity, is often confused with conspiracy. The fact that this spontaneous order needs uncertainty makes the process even more counterintuitive. This spontaneous order is the basis of the "invisible hand" described by Adam Smith. A free market economy is an evolving structure with no central planner, but it does have coordinated activity by the participants.

The spontaneous nature of free markets makes them innovative and resilient, but there is a cost. The cost of freedom is uncertainty. Only by living with uncertainty can a free society thrive. For this reason, many societies slide back into totalitarian rule. They cannot accept the responsibility of living with the uncertainty that is necessary to maintain a free market. It is easier for them to rely on the certainty of a central planner than to live with the uncertainty of a free society...

Details zur Ausgabe

• Verlag: Wiley
• Erscheinungsdatum: 2001
• Sprache: Englisch
• ISBN 10: 0471399817
• ISBN 13: 9780471399810
• Einband: Taschenbuch
• Auflage: 1
• Anzahl der Seiten: 244
• Kontakt zum Hersteller: Wiley-VCH GmbH; product_safety@wiley.com; ; Boschstrasse 12; Weinheim; 69469; Deutschland