Article: Why Stock Markets Crash: Critical Events in Complex Financial Systems.(Book Review)

DIDIER SORNETTE

Here a scientist treads on economists' territory. Sornette applies cutting-edge thinking in the field of complexity and the theory of critical phenomena to the inner workings of the stock market. The objective is a potentially lucrative one: to predict the market's peaks and valleys. As Sornette points out, "Market crashes exemplify in a dramatic way the spontaneous emergence of extreme events in self-organizing systems," meaning that the science he employs should work. Generally, economists believe that stock market crashes are explained by effects that occur in short time scales--hours, days, or weeks at most. Sornette argues to the contrary, ...

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