Didier Sornette Quotes

The problem is not that this optimistic view is wrong. By economic accounting, the optimistic view is mostly right.

By one estimate, 90% of international transactions were accounted for by trade before 1970, and only 10% by capital flows. Today, despite a vast increase in global trade, that ratio has been reversed, with 90% of transactions accounted for by financial flows not directly related to trade in goods and services.

According to the academic world view that markets are efficient, only the revelation of a dramatic piece of information can cause a crash, yet in reality even the most thorough post-mortem analyses are typically inconclusive as to what this piece of information might have been. For traders and investors, the fear of a crash is a perpetual source of stress, and the onset of the event itself always ruins the lives of some of them.

The concept of a random walk is simple but rich for its many applications, not only in finance but also in physics and the description of natural phenomena. It is arguably one of the most founding concepts in modern physics as well as in finance, as it underlies the theories of elementary particles, which are the building blocks of our universe, as well as those describing the complex organization of matter around us.

Positive feedbacks, when unchecked, can produce runaways until the deviation from equilibrium is so large that other effects can be abruptly triggered and lead to ruptures and crashes.

The phenomena and underlying mechanisms discussed in this book may thus become even more relevant to a larger and larger portion of human activity. Understand their origin, and be prepared for subtle but significant precursors!

Since it is the actions of investors whose buy and sell decisions move prices up and down, any deviation from a random walk has ultimately to be traced back to the behavior of investors.

Knowledge is encoded in models. Models are synthetic sets of rules, and pictures, and algorithms providing us with useful representations of the world of our perceptions and of their patterns.

In order to have a continuing influence, the stock market has to continue rising at an accelerating pace faster than exponential. Only a faster-than-exponential stock market growth makes private investors feel richer.

The incentives that people need to work and to find meaning in their lives should be found beyond material wealth and power.

Indeed, the financial world is such that any insight is almost immediately used to trade for a profit.

Faster-than-exponential growth also occurs in computing power, as measured by the evolution of the number of MIPS per $1,000 of computer from 1900 to 1997. Thus the so-called Moore's law is incorrect, since it implies only an exponential growth. This faster than exponential acceleration has been argued to lead to a transition to a new era, around 2030, corresponding to the epoch when we will have the technological means to create superhuman intelligence.

A bubble that goes up is just one that could have crashed but did not.

The assumption of perfectly rational, maximizing behavior won out until recently in the art of modeling, not because it often reflects reality, but because it was useful.

It is difficult to assess how much this gambling spirit is active in the minds of individual investors. If it is, even to a small degree, it is relevant to our discussion since it makes investors prone to imitation and herding because they invest on little information. It may also explain the anomalously large volatility of prices and their potential instabilities.