Forecast: What Extreme Weather Can Teach Us About Economics

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 solidPicture 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 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.
Forecast What Extreme Weather Can Teach Us About Economics 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 findin

  • Title: Forecast: What Extreme Weather Can Teach Us About Economics
  • Author: MarkBuchanan
  • ISBN: 9781608198511
  • Page: 353
  • Format: Hardcover
  • 1 thought on “Forecast: What Extreme Weather Can Teach Us About Economics”

    1. Markets are not Gaussian distributions, they behave according to power laws (think earthquakes). Markets have long memories. Keynes saw markets as beauty contests, where the key is to guess which contestants the judges (or other participants) will favor. Equilibrium is irrelevant, as markets have positive feedbacks, especially when many parties have the same strategy. Markets are predictable when the number of participants is lower than the number of possible outcomes.Economists have avoided try [...]

    2. A clearly written and informed perspective on the reasons traditional economic models continue to be useless in modeling actual economic activity through the ongoing devotion to equilibrium models. This pairs well with Nate Silver's The Signal and Noise, particularly in its focus on how the development of weather forecasting models (in terms of model construction and partially on results obtained) can provide a path forward to develop better models by understanding the dynamics of underlying phe [...]

    3. Not bad. It is a book about the instability of markets and the rejection of a central idea in economics that equilibrium are stable and markets are efficient. The book argues the opposite is the case.

    4. A bit too much for the general reader, but good points and interesting ideas for using physics/natural sciences methods on economic forecasting.

    5. Buchanan puts the market akin to weather, where the magnitude of change follows the power law. Like a loose surface balancing on a deeper torrent of fluctuation. Ideas of market stability and equilibrium start to loose their value.There is little meat on what we can use to forecast the economy better going forward.An extension of an insight gained from reading this is that if we want to trade off anomaly, we should look into studying corporate buying patterns, regulatory rules and behavioral fin [...]

    6. That book is enlighting. This book's synopses is also misleading. It covers much more ground that it says and I was amazed by the storm of ideas that Buchanan brings in this book. Forecasting in Economics and Finances isn't only about predicting behaviors of prices (the author will repeat that famous result that different from a weather forecast, once human beings know what about to happen in a market, their actions change and so does the outcome), it's about giving direction for policymakers an [...]

    7. It was a really interesting analogy to compare financial markets to the weather. Markets are unpredictable and sometimes erratical and require an interdisciplinary approach to be fully comprehended. I couldn't help but thinking on the "river" concept Buchanan used on his network book and thinking how markets could be really similar to a river. Every one of them is different, it has it's own course and is affected by outside forces that make them go into motion. The neoclassical thought of equili [...]

    8. - Good but not great. He seems to play the same double-meaning game with the word "rational" that he accusess economists of playing with "efficient." Otherwise, very thought-provoking, although off-puttingly negative at times. If his intended audience is economists, Buchanan might do better to guide them to his truth instead of trying to chop them down at the fundamentals.

    9. This is a necessary book. It demonstrates in a clear and evidence-based manner why economics as it is currently taught is little better than reading tea leaves. It also points to some more hopeful signs that techniques developed for analysing dynamic systems in other fields might be used to create understanding of how markets actually behave in the real world.

    10. The content of the book or the idea prevalent throughout the book is mostly that prediction of stock market is not possible specially based on past data As it does not repeats itself Interesting part is author has managed to bring examples from different industries to support the same

    11. Markets are not efficient and have long tails, people are irrational, quantum crises come as soon as many people \ funds start to use the same strategy - good set of thoughts supported by analogies. I didn't like that the same thoughts were repeated several times

    12. One of the many books to come out of the 2008 financial crisis. It is a good book, instructing on the fragility of economic systems and the uncertainty of prediction, and exposing the shaky theoretical foundations on which much of economic edifice is built.

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