Forecast: What Physics, Meteorology, and the Natural Sciences Can Teach Us About Economics 1st Edition

by Mark Buchanan (Author)

27 customer reviews

ISBN-13: 978-1608198511

ISBN-10: 1608198510

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Picture an early scene from The Wizard of Oz: Dorothy hurries home as a tornado gathers in what was once a clear Kansas sky. Hurriedly, she seeks shelter in the storm cellar under the house, but, finding it locked, takes cover in her bedroom. We all know how that works out for her.

Many investors these days are a bit like Dorothy, putting their faith in something as solid and trustworthy as a house (or, say, real estate). But market disruptions--storms--seem to arrive without warning, leaving us little time to react. Why are we so often blindsided by these things, left outdoors with nothing but our little dogs? More to the point: how did Kansas go from blue skies to tornadoes in such a short time?

In this deeply researched and piercingly intelligent book, physicist Mark Buchanan shows how a simple feedback loop can lead to major consequences, the kind predictable by mathematical models but hard for most people to anticipate. From his unique perspective, Buchanan argues that our basic assumptions about economic markets--that they are for the most part stable, with occasional interruptions--are simply wrong. Markets really act more like the weather: a brief heat wave can become a massive storm in a matter of a few days, or even hours.

The Physics of Finance reimagines the basics of how economics, with consequences that affect everyone.

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Editorial Reviews

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Buchanan, physicist and science writer, argues that scientific models of positive feedbacks can be used in economics and finance to predict what is likely and to warn of specific dangers. Positive feedbacks are . . . the process by which small variations in a given system can become increasingly large . . . accelerating how fast things get bigger and leading to consequences far beyond our expectations. We learn most economists continue to believe in the concept of equilibrium—economic systems are inherently stable and self-regulating, tending toward balance; the author urges adopting disequilibrium thinking, which has shown us that ongoing fluctuations in economic and financial systems are quite normal. Buchanan argues that financial crises of all kinds, from short shocks to global economic meltdowns, are like storms in the atmosphere that weather forecasters not only understand . . . but also predict well enough to make a big difference. The use of this scientific approach began after the 2008 financial crisis. This challenging book will appeal to students and library patrons with a background in economics and finance. --Mary Whaley

Review

“The 2008 crash created not just a crisis in the economy, but also a crisis in economic thinking. Ideas of market stability and efficiency lost their value faster than a sub-prime mortgage. In this compelling and lively account, Mark Buchanan tells the story of the new ideas that are revolutionizing the field. We may not be able to perfectly forecast the economic weather, but we can be better prepared for storms to come.” ―Eric Beinhocker, Executive Director of the Institute for New Economic Thinking at Oxford University and author of The Origin of Wealth

“A lucid, absorbing story” ―New Scientist

“The author's stimulating deconstruction of contemporary economic theory parallels a treatment of major positive developments in physical sciences and pays due respect to the functions of government and law.” ―Kirkus Reviews

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Product details

Hardcover: 272 pages
Publisher: Bloomsbury USA; 1 edition (March 26, 2013)
Language: English
ISBN-10: 1608198510
ISBN-13: 978-1608198511
Product Dimensions: 6.5 x 0.9 x 9.5 inches
Shipping Weight: 1.2 pounds (View shipping rates and policies)
Average Customer Review: 27 customer reviews
Amazon Best Sellers Rank: #2,069,599 in Books (See Top 100 in Books)
- #4474 in Books > Textbooks > Science & Mathematics > Physics
- #10066 in Books > Textbooks > Business & Finance > Economics
- #20592 in Books > Science & Math > Physics

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Lucia

Changes the way you view market price action.

July 16, 2014

Format: PaperbackVerified Purchase

Great book. I had long suspected that news has limited impact on price action. How many times have we seen an asset spin out of control for no apparent reason and then like a bike that wobbled, correct itself and keep on riding. I work in financial sales and when these moves occur, everyone from here to kingdom come calls up to ask why the move occurred and mostly , I am at a loss and have to guess at the feeble cause. What Mark does is apply the laws and rigors of physics (Think earthquakes, tornados, electrical patterns) to price action. The thing that I found most usable and fascinating, is the idea that big moves have pre-shocks and post shocks so even if you trade mortgages.. if EUR/ Romanian Leu is wigging out and USD/Korean Won is spiraling.. and Soybeans are cratering--- there might be some connection and some meaning found across the landscape that tells you a storm is brewing everywhere. In these very low volatility times there is something to be said for watching the horizon carefully for those far away storms that could be in your backyard in a second rather than retrofitting some keynsian ideas that never quite explain the entire thing.

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Russ Abbott

Well written description of the new economics

August 4, 2013

Format: HardcoverVerified Purchase

Mark Buchanan is a physicist turned economics writer. This book explains the ways in which macro economics has been hiding its head in the sand. The fundamental promise of current macro-economics is that the economy is explained by states of equilibrium. A standard example is prices. If the price of an item is too low, it will be more attractive to more people, who will buy more of it, which will reduce the supply and lead to an increase in price. After a while the price will adjust to a level at which it is neither too high or too low. Everything will be in balance.

That's fine, but what we really want to know about the economy is how it behaves when things are so out of balance that slight adjustments aren't enough to restore the equilibrium. Buchanan examines many such areas which macro-economics has ignored and which are important for understanding how the economy works. This is a very good book and one that people should read.

Why 4 stars instead of 5? I found the book a bit repetitive. The anti-equilibrium message is repeated too many times. In addition, there were cases where examples (or better examples) would have been helpful. So 4 stars means that it is a good book, but it could have been better.

For more details you may want to look at my chapter-by-chapter review on Google+: http://goo.gl/OlKL3.

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Frank Lawlor

Excellent Insights into the Great Recession

January 3, 2014

Format: HardcoverVerified Purchase

For the past decade I just didn’t feel comfortable as the no regulation, just let the markets work libertarian philosophy took hold of both the Democrat and Republican parties.

Coming from a science background I just felt that Economics was essentially a “complex system” and like all the others in science (weather, earthquakes, computer networks, etc.) it should have lots of inherent instabilities which defined their natures (e.g. weather is notable for its storms, not its pleasant days). We wouldn’t have all pleasant days if we “just stopped regulating it”, but that seems to be the theory of current economics.

I’m glad to find someone who has made a great case for the nonsense being peddled by the economics establishment for the last couple of decades.

This is a sensible and VERY readable case for economics as yet another complex system and the need to understand the implications of that.

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mvp1984

far more interesting and important than a blow by blow

May 14, 2014

Format: Kindle EditionVerified Purchase

A quick, profitable read. Buchanan puts into clear language the problems underlying pretty much all of mainstream economic discourse. Something is seriously wrong, but it's not captured by the crazy nonsense coming out of gold bugs or Austrians or other easily dismissed gadflys. If you've wondered about the theory first, data second method of Econ, this book does a fantastic job of explaining that you are correct to be ill at ease.

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A M

The book suggests a theory (based on the Power Law) that explains market failures and possible methods to prevents such failures

August 12, 2015

Format: Kindle EditionVerified Purchase

The book presents an interesting refutation of the idea that the stock market is in a good shape due to the wisdom of the crowds. It suggests a theory (based on the Power Law) that explains market failures and possible methods to prevents such failures.

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Robert B. Gramacy

Interesting read.

October 15, 2014

Format: HardcoverVerified Purchase

A very interesting tour of why studying markets in equilibrium is misguided. Sometimes it is easy to quibble with the author, but the overall sentiment is on the money. We need to be more humble with it comes to our cartoons of the market.

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D. Arsenault

Fantastic book - don't miss it

May 28, 2016

Format: PaperbackVerified Purchase

One of the best reads on physics principles fit with complex dynamical systems like economic systems and stock markets. Very informative and a great read!

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don adams

What's wrong with Ecomomics

November 27, 2013

Format: HardcoverVerified Purchase

The title of the book should of been "Whats wrong with Economics". Anybody that has followed economic forecast soon come to the realization that economics needs some help. The book basically states that economist use linear analysis when they should be using non linear. The book is an easy read and does not get one bogged down in a lot of mathematical equations.

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