The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street (Hardcover)

~ Thomas A. Bass (Author) "All hell has broken loose in the Chicago exchanges..." (more)
Key Phrases: trading console, senior founders, complex systems research, Prediction Company, Wall Street, New York (more...)

Editorial Reviews

Amazon.com Review

Using a computer to beat Wall Street from afar is, arguably, the new American dream. While it will remain just that for most of us, an offbeat gang of academics turned financial wizards is showing it can be done. Led by acclaimed physicists Doyne Farmer and Norman Packard, the Santa Fe-based Prediction Company has proven since its 1991 founding in an adobe bungalow furnished with plastic lawn chairs and top-of-the-line Sun workstations that it is indeed possible to make millions in the world's financial markets by anticipating trends and developing software that automatically capitalizes on them. In The Predictors, Thomas A. Bass colorfully relates their tale of fiscal triumph--and reveals in the process how even an unorthodox group of antibusiness intellectuals in far-off New Mexico can make the world's biggest institutions sit up and take notice.

Long esteemed in the scientific community, Farmer and Packard have become legendary in hacker circles since their failed attempt to beat the roulette tables in Las Vegas with toe-operated computers was chronicled in Bass's well-regarded 1985 book called The Eudaemonic Pie. This time, though, the two hit the jackpot with their cutting-edge computer programs and the company they created to trade German marks, Chicago commodities, Japanese treasury bonds, Texas oil futures, and New York securities. Bass's prose is a bit flowery at times, but his perceptive you-are-there account is nonetheless entertaining and sure to cement the pair's reputation as today's ultimate masters of "phynance," the successful, and now oft-copied, merger of physics and finance. --Howard Rothman

From Library Journal

In 1991, physicists Doyne Farmer, Norman Packard, and Jim McGill established the Prediction Company in Santa Fe, NM, intending to use their knowledge of chaos theory (the study of complex systems) to develop predictive models and automated black-box systems for beating financial markets worldwide. That they succeeded is only part of the story, the more interesting part of this tale being its human side. In Wired contributor Bass's account, we see the primary characters deal with a broad array of charlatans and geniuses, learn from their successes and failures, grow to appreciate the problems inherent in traditional economic theory, and become adept businessmen and managers. Useful as a primer in chaos theory as well as the various challenges that face start-up firms and the complexity of financial markets, this marvelous story should interest readers in both public and academic libraries.
-ANorman B. Hutcherson, Kern Cty. Lib., Bakersfield, CA
Copyright 1999 Reed Business Information, Inc.

See all Editorial Reviews

Product Details

• Hardcover: 320 pages
• Publisher: Henry Holt and Co.; 1st edition (November 2, 1999)
• Language: English
• ISBN-10: 0805057560
• ISBN-13: 978-0805057560
• Product Dimensions: 8.9 x 6.3 x 1.3 inches
• Shipping Weight: 2.7 pounds
• Average Customer Review: 2.8 out of 5 stars  See all reviews (38 customer reviews)
• Amazon.com Sales Rank: #673,005 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

105 of 110 people found the following review helpful:

2.0 out of 5 stars You had to be there, March 22, 2000

By A Customer

I met Doyne Farmer at his office near the Aztec Cafe in 93 and spent a pleasant hour with him at a nearby park comparing worldviews. At the time I felt the effort to "predict" financial behaviors was, to put it kindly, a misnomer. The book did not change my opinion.

What Farmer and his crew have accomplished is simply finding a set of adequate engineering models which can cut through the emotional fog of human traders and barely come out ahead, sometimes. It isn't chaos theory at all, and I am surprised that none of the critics or reviewers have mentioned this fact: Farmer (admitted) that his methods were simply engineering model-fitting with some trendy glue...they never got to the level of applying truely sophisticated ecological or evolutionary models to the market as a whole....You might say they made a mystery out of playing both ends against the middle, and were able to find someone to pay to see them do it.

The real problem of modelling real world systems was swept under the rug by the author with a throw-away reference to "the monster of dimensionality". The complexity of models increases geometrically or hypergeometrically with the addition of each variable, depending on how richly connected the model is. A model of the financial world running a few hundred variables would not come close to processing in real time--the reason that massively parallel supercomputers can render navier-stokes equations for the weather or hydrodynamic turbulence at all is because the node inputs do not require real world data...they keep riffing on data feed back from neighbors played against fairly simple transfer functions. To do a state space diagram with half a dozen variables defies the capabilities of any visualization method known to science at this time...and it takes more than science to distill the behavior of the world's financial community into fewer than two or three variables. It simply can't be done.

For the technically curious, the technologies that Farmer used were variants of methods that Hebbs set forth in the seventies and eighties which are capable of doing set-theoretical analysis of directed networks state changes using fairly basic logical inference. THe output is given in a few rules of if-then and probabilites, which must be tested against common sense. The book does mention this in some casual comments which can get away from the uninitiated pretty easily.

There are probably 10,000 living engineers with the savvy to adapt some algorithyms Byte Magazine published in the 80s as well as Farmer. Farmer was The Chosen One (with apologies to the Matrix) simply because he was famous, and he was famous because he had no problem taking credit for a field of novelty that dozens or hundreds of others had made viable (and he was the star of a readable book by a familiar author).

Just for fun I went back and found an Omni magazine from 1990 with a big feature article on Chaos theory. It never mentioned the Chaos cabal, but this book leads you to believe that there was no Chaos before, or without, them...only chaos.

Reading the book brought back intense memories of the discomfort I felt in Santa Fe, where the divide between the haves and the have-nots was wide enough to swallow up the whole history of technically advanced invaders scamming their native victims. SOme kind of fractal symmetry here...but since I am asking Doyne for money now don't make me spell it out.

On the plus side, I really enjoyed the story telling ability of the author, his idiosyncratic interests were not too far removed from my own. On the plus plus side, I actually finished the book, which I am not wont to do these days given the chaos of my interests and commitments. I hoped, with many other readers, to find some order in the turbulence, but I only found a good story of a benign scam with colorful casting, something that Redford and Newman would have starred in in their heyday.

I got the book for half price. It was worth the money to me. But maybe you had to be there.

75 of 85 people found the following review helpful:

1.0 out of 5 stars Swindled, February 14, 2000

By	Milton Garber (Missouri) - See all my reviews (REAL NAME)

This book is all fluff and no substance. The subtitle, "How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street," is a deceit.

Aside from telling us that the physicists used nonlinear equations with live data streams to build computer models of different markets, e.g., gold prices, oil prices, T-bonds, stocks, and various currency exchange rates, and that these models were then used successfully for trading purposes, the author tells us nothing. There are no specifics, not even any general descriptions, of how the models were built, what data were used, or what refinements were made along the way. There are no specifics on how much money was made and by whom.

The author treats us to much irrelevant minutiae such as who ate what at specific moments during various dinner conversations. But the author made no attempt to explain how these supposedly successful trading models were created.

If the author didn't understand the science well enough to report it, then he shouldn't have written the book. If he did understand the science but the scientists refused to reveal details to him, he should have done some research. He could have read their published papers on chaos and complex systems with respect to topics other than financial markets. He could have interviewed people who would be able to make educated guesses as to how it is done. As it is, he gives us no clues as to how the models were built or what data were used.

After wasting my time reading this book, I felt I had been swindled. There really ought to be a way to get one's money back. All I can do is say to the author (Thomas Bass) and the publisher (Henry Holt), "Fool me once, shame on you. Fool me twice, shame on me." And that's the way markets work.

24 of 26 people found the following review helpful:

3.0 out of 5 stars very interesting and very disappointing, October 22, 1999

By A Customer

Fascinating subject and easy to get grabbed by, but as you near the last third of the book, you sense you will be disappointed, feeling you are about to be asked to "leave the theater before you see the end of the movie". 95% of the book builds up to telling you how these guys beat the market, and in the end you never find out if they did. The cliff hanger comes at almost the last page when you are told "the company is starting to make some good money". It's as if the author left out the last 2 solid "what happened" chapters. Also, whats with the fashion commentary? In almost every "scene" each party is described fashionwise...so and so was dressed in blue jeans, a somber black shirt and an oversize big silver buckle...who cares! The books cover promises to tell you how a band of physicists made a fortune on Wall Street, and you never learn if they did. It was a fascinating read, just wish it had an ending.