Patterns in the dark : understanding risk and financial crisis with complexity theory / Edgar E. Peters.

Format:

Book

Author/Creator:

Peters, Edgar E., 1952-

Series:

Wiley investment series

Language:

English

Subjects (All):

Free enterprise.

Austrian school of economics.

Physical Description:

xvi, 222 pages : illustrations ; 24 cm.

Place of Publication:

New York : Wiley, [1999]

Summary:

Patterns in the Dark is that rare book that offers an entirely new perspective on an issue of ongoing concern to investors: the unpredictability of financial markets. In this groundbreaking work, leading investment strategist and authority on chaos theory Edgar Peters makes accessible ways of understanding market behavior that--until now--were known only to specialists.

In a lucid and engaging style, Peters explains how processes with a large number of independent agents, such as free markets, can spontaneously organize themselves into a coherent system. He draws on the work of the Austrian school of economics and complexity theory to show how free markets are by their nature continually evolving complex systems that require uncertainty to operate successfully. Using everyday examples, Peters shows how complex systems use uncertainty to adapt to changes in their environment and to absorb unexpected shocks. As proof, he cites instructive examples of how rash or heavy-handed attempts to eliminate uncertainty in markets have invariably led to disaster.

Patterns in the Dark draws on a broad range of human knowledge and experience to clarify the behavior of a system that now operates on a global, 24-hour, and thoroughly interconnected basis. Peters illuminates the complex operation of the marketplace by including keen observations drawn from science, mathematics, and artistic creation as well as economics. His models include the social vision of the Austrian economists, Darwinian ideas of evolution, the laws of physics, and the creative risks of the artist. His meditations on financial markets weight the effects of limitations vs. rules, risk vs. uncertainty, and order vs. chaos.

As a guide to a world marketplace that has become increasingly complex and uncertain, Patterns in the Dark offers the investor a rich source of insight, illumination, and wisdom.

Contents:

Chapter 1 Introduction: Life, Risk, and Uncertainty 1

Part 1 Uncertainty, Complexity, and Spontaneous Organization

Chapter 2 Imposing Order: Conspiracies and the Mathematics of Ignorance 11

Four Dilemmas 14

Dilemma 1 15

Dilemma 2 15

Dilemma 3 17

Dilemma 4 18

Facing the Dilemmas 19

More Information? 20

The Ellsberg Paradox 22

Reducing Risk with Uncertainty 24

Order without Plan 27

Chapter 3 Uncertainty, Vagueness, and Ambiguity: The Need for Information 29

Vagueness and Ambiguity 30

"Could You Be More Specific?" 32

Confusion 33

Conflicting Evidence 35

Is Knowledge Knowable? 37

Chapter 4 Complexity and Time: The Dynamics of Uncertainty 39

Real Time 41

Complexity 44

Complexity and Randomness 46

Characteristics of Complexity 48

Purpose 49

Decentralization and Feedback 49

Adaptation 50

Chance 51

Rules 52

Mechanics of Complexity 53

Uncertainty and Freedom 57

Part 2 Free Markets and the Need for Uncertainty

Chapter 5 Subjectivism: "The Economics of Time and Ignorance" 61

What Is Subjectivism? 64

Complexity and Purpose 68

Is it Efficient? 69

Change 70

Creative Destruction 72

Free Markets and Complexity 74

Chapter 6 Diversity and Knowledge 77

Market Efficiency 78

Diversity of Knowledge 83

Austrian Economics and Knowledge 85

Communication 88

Chapter 7 Crisis and Competition: Creative Destruction in Free Markets 93

Competition 94

Discovery 95

The Business Cycle 99

Uncertainty and Competition 102

Uncertainty and Crisis 108

Endogenous Change 114

Chapter 8 Economic Evolution: Change in Real Time 115

Going Backward 116

Herbert Spencer and Social Darwinism 117

Problems with Darwin 122

Genetic Algorithms 125

Economic Evolution 133

Chapter 9 Creativity: Uncertainty, Innovation, and Entrepreneurs 139

Defining Creativity 141

The Creative Individual 145

Three Traits of Creative People 146

Einstein's "Thought Experiments" 147

The Creative Process 149

Preparation 150

Incubation 151

Inspiration 153

Evaluation and Elaboration 153

Entrepreneurs 154

Chapter 10 Rules and Law: Limits in Complexity 159

Physical Laws 160

Stability and Predictability 164

Complex Society 167

Social Law 170

Free vs. Structured Markets 173

Free Societies 174

Socialism 178

Anarchy 181

Free Markets and the Need for Uncertainty 182

Chapter 11 Degrees of Order: Balancing Rules, Freedom, and Uncertainty 185

Structure and Law 186

The Complexity Model 187

Structure and Uncertainty 187

Innovation 189

Cooperation and Competition 191

Implications of the Complexity Model 192

Hybrid Capitalism 192

Government and Crisis 194

The Asian Crisis of the Late 1990s 197

The Future 199

Chapter 12 The Need for Uncertainty 201

Self-Organization 203

Austrian Economics 205

Moriarty Revealed 207.

Notes:

Includes bibliographical references (pages 209-211) and index.

ISBN:

047123947X

OCLC:

40433200