Sornette's book is clearly a wild overhype,
although containing a lot of useful stuff. I am
having it reviewed for the Journal of Economic
Behavior and Organization.
It is part of a broader current fad, which is
a subset of complex dynamics, the so-called
econophysics movement. Power laws are their
big thing, which they like to derive from all sorts
of physics laws, with no way to distinguish
between which of these works better than another.
The kernel of their stuff is that power laws
really are an empirical reality that has not been
very well dealt with or recognized by most economists.
(For the uninitiated, these imply the "fat tails," or
leptokurtosis, that we see in all financial returns
time series, that arise from the extreme volatility,
the bubbles and crashes in these financial markets
that generate all that "fictitious capital," extreme
observations that would not occur in a normal
or Gaussian distribution). OTOH, the origins of
this kind of analysis go all the way back to Bachelier
in 1900 and includes work by Pareto not much later,
as well as by Mandelbrot in the early 1960s. Although
the latter is a mathematician primarily, the former
two were more economists than anything else.
A problem with much of the econophysics lit
is that many of these people know little econ. They
have some simple-minded view of what econ is all
about and so appear among economists acting like
they are here to save us from all our ignorance and
stupidity. There is certainly plenty of that around,
but it does not help when the would-be savior
barely knows what he is talking about in econ, even
if his math is hot and his physics is maybe also,
sort of, atlhough this is definitely now a major fad
and so we (or at least I) are (am) seeing a lot of
it that is very crappy. Much of this appearing
in physics journals, e.g. Physical Review E and
Physica D, although there is now a new journal
edited by both economists and physicicsts, Quantitative
Finance, which is pretty good and where a lot of it
is now appearing. A lot of Sornette's original papers
have appeared there. The founder of it is the old
chaos theorist and physicist from the Santa Fe
Institute, J. Doyne Farmer.
I think there is a lot of interest going on here, but
the economists and the physicists need to keep in
better communication along the way.
Barkley Rosser
----- Original Message -----
From: <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>
Sent: Thursday, June 19, 2003 2:48 AM
Subject: Re: [PEN-L] Complexity
> On Wed, 18 Jun 2003 16:57:17 -0400, Barkley Rosser
> wrote:
>
> >
> > Briefly, there were
> > indeed "intellectual bubbles" regarding cybernetics,
> > catastrophe theory, chaos theory, and complexity
> theory,
> > which rose and then fell.
>
> What's your view on Didier Sornette and log-periodic
> power laws? Another intellectual bubble developing?
> I've got his "Why Stock Markets Crash" and there is
> some good stuff there, but he appears to be trying to
> extend his theory into a general principle of stock
> market movements. HE's also predicted economic
> collapse somewhere around 2050, which is usually the
> economic iconoclast's equivalent of jumping the shark.
>
> dd
>
