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Book Review: The (Mis)Behaviour of Markets - A Fractal View of Risk, Ruin and Reward, by Benoit B Mandelbrot
This was another work book sale find; of course I'd heard of the author but I don't think I'd actually read any of his books before. To some extent, this covers the same ground as The Black Swan, which I read a couple of years ago, but Mandelbrot is a far less irritating writer. Perhaps the text is more intellectual, more demanding of mathematical understanding (but not requiring prior knowledge; Mandelbrot explains new concepts well, and generally avoids equations - indeed he expresses a preference for graphs and pictures to demonstrate his ideas). He fills in some missing gaps in my knowledge, confirms the recollection I'd had that classical economics is based on classical thermodynamics, and explains the use of the Gaussian distribution by simply identifying that it is mathematically well understood, whether it is appropriate to a given situation or not. He illustrates various ways in which his iterative, fractal approach, produces market and asset price models that appear far more realistic than traditional Gaussian ones.

The book was written in 2005 and therefore predates the financial crisis, but Mandelbrot refers to the Great Depression, Black Monday, the Asian crisis of 1997 and the dotcom bubble, and he highlights that a few significant days in the market can make a great difference. The one possible weak point in the writing is again the insistence on documenting the negative reaction of conventional academics and economists to his ideas: no doubt it's based on his experience, and perhaps something is needed to explain why he writes about an unconventional path, but there is a slippery slope from the unconventional to the maverick, all the way to a conspiracy theorist. Fortunately Mandelbrot doesn't go too far on this aspect.
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July 2025

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