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Very worthwhile read. May be overly simplistic for some but the role of power laws in nature and seemingly in human history is fascinating, and quite timely given small issues recently. Will a small economic issue lead to major crash.
It is most probably a very plausible thesis, but plausibility is not enough to verify a thesis as this one, because A (self-organized critically) is a mechanistic theory of the world in that state, as we know now, but what excludes any other possible mechanistic theory that would/could/might result in the same power law. B is not necessary and sufficient condition for A, just because A->B is true. Well, let us call "everything is in a self-organized critical state" statement A, and "something follows a power-law" statement B. The book never even mentions this question, and never even tries to answer it. The book is not able to show us any A->B save for the sand pile games (there are maybe hundreds of its variants in the physics literature), and wants us to believe that since we see empirical evidence of B, then everything is in a self-organized critical state. I read this book cover to cover.
One other problem I have with this book is that it is superfluous if you have read or own a copy of Per Bak's How Nature Works: The Science of Self-Organized Criticality, just that Bak's book is out of print and expensive.The thesis is that everything in the world (almost everything) is in a self-organized critical state, therefore prone to upheavals caused by minor disturbances, and the latter is logical equivalent of a power-law. In other words, all the thesis of this book is a speculation about state of the affairs of the world. This book has too many pages for little content. Of course this could be the case, but it could not be as well. This is either intellectual indolence or maybe even worse, intellectual dishonesty. The thesis of the book could have been explained much more economically.
A straightforward mathematical reasoning can show us that A results in B, or A->B.
I wish I could find a hardcopy edition to keep. The author shows a solid understanding in most of the topics he addresses. This book is one of the few great books I believe any scientists, economists, and intellectuals should read very carefully. It simply connects lots of dots.
but with a healthy respect for catalyst points and potential / probable ranges of outcome, as opposed to an overly anxious fixation on pegging the size of the move. The power law, in other words, cannot tell you how big the earthquake will be either. The ultimate size and destructive power of the event is determined by the combined manner in which all the domino chains fall, and there are far too many inputs (most of them hidden from the human eye) to track. and thus the stock market equivalent of a giant bullish "earthquake" resulted.
persistent tremors, dry underbrush, extreme low humidity, and so on. This is why it's so hard (if not impossible) to know how far a market will travel -- in either direction, up or down -- if conditions are suitably conducive to a wide range of possible outcomes. If you've read this far, I hope I've inspired you to read the book. If any event in the chain fails to sustain the feedback loop, the earthquake fizzles out. a sort of linear inverse correlation between the size of an event and the probability of its occurrence.
There was a scientist who predicted a major earthquake around L'Aquila weeks before it happened. (The book touches on out-of-the blue market crashes, but I suppose it took the awe-inspiring volatility of Q408 and Q109 to really open my eyes to the point in question).To briefly summarize the key idea, no one knows how big an earthquake will be before it starts. So the only thing that really governs the ultimate size of earthquakes, wildfires, pandemics, and other complex catastrophic events is something called a "power law". I first read it many years ago, found it effortless to pick up and read again with fresh eyes a year or two on, and am only now returning to review it (in May 2009) having stumbled across an interesting market-related connection. The same idea applies to wildfires, flu pandemics, and other complex "catastrophic events" of unknown size and duration fueled by myriad complex inputs.
I review this book with a specific message (and specific audience) in mind: The driving insight behind "Ubiquity" is of potential great worth to active traders and investors. In other words, there's no effective way to predetermine the magnitude of a major market move, without first having a VERY clear sense of all the myriad inputs and all the ways they can combine. Just for fun, take the relatively recent (as of this writing) earthquake in Italy for example. Earthquake energy feeds off a series of feedback loops, which are in turn driven by a chain of complex interlinked events (plate tectonics, geothermal pressures and whatnot) beneath the earth's surface. In the case of the monster bear market rally that has been unfolding for nine weeks or so as I write this review, an improbably long chain of positive economic data points fed into a number of other supportive conditions. Not unlike the way some say that significant market movements can't be predicted.
The book is excellently written -- an easy and engaging read. Afterwards the authorities (in deep damage control mode) said the scientist's method of earthquake prediction (involving radon gas) was hopelessly unreliable, mainly because "earthquakes cannot be predicted." And yet they were using the baseline belief that "earthquakes cannot be predicted" as a tautological first principle. He was reported to the authorities for "spreading alarm" and forced to take his findings off the internet. Again, if rallies and declines follow power laws, it doesn't make sense to try and anticipate magnitude ahead of time without a VERY clear sense of what could stop the movement in its tracks. This concept is valuable to traders and investors because it offers a tangible intellectual anchor for a critical market insight. and that this established relationship between size and frequency remains stable up and down the line.The market insight that brought "Ubiqity" back to the forefront of my mind is as follows: Major market rallies and declines behave a lot like the phenomena discussed in the book.
And then as active market participants, they get involved with the phenomena as it gets underway.
All that to say is, in some ways smart traders and investors are like geologists or forest rangers on the lookout for earthquake-prone / wildfire-prone conditions.
that big earthquakes occur relatively less often than small ones over time.
even though clear evidence shows that general conditions can most certainly serve as a "heads up" guide for those with eyes to see and ears to hear.
This is so because the earthquake itself does not know how big it will be until events actually play out.
At the same time, power law governance is instructive in that, while traders and investors cannot reliably predict deeply complex outcomes, they CAN analyze the general conditions necessary for producing a significant outlier event, in the same manner that one can examine conditions conducive to "extreme" outcomes on the natural disaster front.
And thus we can hypothesize that: 1) No one knows in advance how big a rally or decline will be, because the market itself does not know beforehand.and 2) Major market rallies and declines are ultimately governed by power laws.
One can perhaps think of an earthquake or a wildfire, then, as the combined result of thousands of hidden domino chains.
But it CAN tell you that the starting conditions for big and small earthquakes often look exactly the same.
Yes, there was mention of it. Some of the stories were interesting. And, I thirst for topics that look at the not-so-obvious faults and currents which underlie everything.
There were so many side trips and diversions that I just had to skim whole chapters in search of where I might pick up the trail again. And, for me, there was a take away: the notion of maladjustment -- the build up of stress preceding any.upheaval. I felt I was left in the woods, deep with discussion of the science itself rather than the topic this science was supposed to be exploring.
I, like some of the other reviewers, found that I could not read this cover to cover. But, whatever whole and complete picture Buchanan was trying to paint never came together. In this case, the book might have a case of mal-editing.
Thus, I was eager to read about work being done with sandpile theories. And, there were callbacks to it.
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