Complexity, Risk, and Financial Markets

EDGAR E. PETERS is Chief Investment Strategist for PanAgora Asset Management. He is the author of Chaos and Order in the Capital Markets: A New View of Cycles, Prices, and Market Volatility and Fractal Market Analysis: Applying Chaos Theory to Investment and Economics, both published by Wiley.

Edgar E. Peters's latest book, Patterns in the Dark: Understanding Risk and Financial Crisis with Complexity Theory is not merely an autobiographical indulgence. The bulk of the book is Peters's lucent analysis expounding on the need for uncertainty. Whether he uses the example of genetic algorithms to show how randomness can lead a process to a goal even when the ultimate path is unknown, or if he simply shows how David Bowie's creation of Ziggie Stardust illustrates the integration of two seemingly contrary elements in the creative process (with a nod toward uncertainty as a requirement for stability), Peters's always seems to provide compelling insight into how global structure and local randomness interact. Edgar E. Peters's latest book, Patterns in the Dark: Understanding Risk and Financial Crisis with Complexity Theory is not merely an autobiographical indulgence. The bulk of the book is Peters's lucent analysis expounding on the need for uncertainty. Whether he uses the example of genetic algorithms to show how randomness can lead a process to a goal even when the ultimate path is unknown, or if he simply shows how David Bowie's creation of Ziggie Stardust illustrates the integration of two seemingly contrary elements in the creative process (with a nod toward uncertainty as a requirement for stability), Peters's always seems to provide compelling insight into how global structure and local randomness interact. Ultimately, the book's implications for "global structure" policymakers are more clear than any prescriptions that might be handed down to individual investors acting in an environment of local randomness. However, the discussions regarding various process models and their implications for economic activity are worth the price of admission alone. Interested investors ought to check it out.--("Fool On The Hill - An Investment Opinion" by Alex Schay - June 1999)

• Introduction: Life, Risk, and Uncertainty. UNCERTAINTY, COMPLEXITY, AND SPONTANEOUS ORGANIZATION. Imposing Order: Conspiracies and the Mathematics of Ignorance. Uncertainty, Vagueness, and Ambiguity: The Need for Information. Complexity and Time: The Dynamics of Uncertainty. FREE MARKETS AND THE NEED FOR UNCERTAINTY. Subjectivism: "The Economics of Time and Ignorance." Diversity and Knowledge. Crisis and Competition: Creative Destruction in Free Markets. Economic Evolution: Change in Real Time. Creativity: Uncertainty, Innovation, and Entrepreneurs. Rules and Law: Limits in Complexity. Degrees of Order: Balancing Rules, Freedom, and Uncertainty. The Need for Uncertainty. References. Index.