Mar 13, 2009 | 6
In a lecture at Columbia University this week, famed fractal pioneer Benoit Mandelbrot once again inveighed against traditional economic theories, returning at a time of financial malaise to many of the points he raised in a 1999 Scientific American feature. (In September 2008, as the U.S. economy began to shake, editor Gary Stix provided a brief recap of Mandelbrot's article and the ensuing response from readers in this blog post.)
Mandelbrot, 84, spoke at the Festival della Matematica, or Mathematics Festival, an event produced jointly in Rome and New York City by a consortium of Italian governmental and cultural agencies.
A persistent complaint levied by the Wolf Prize–winning French mathematician: many economic models ignore dramatic jumps, whether in a commodity's price or in an index such as the S&P 500, treating them as outliers. But real-life economic systems, Mandelbrot said, are "dominated by details"—the extreme cases, and specifically the outer 5 percent, are just as important as the rest of the data. To prove his point, Mandelbrot showed a graph of the S&P since 1985, overlaid with the same data minus the wild swings that constitute the outliers. The two graphs were completely different, implying that to ignore the extreme cases is to ignore reality. "I'm extremely visual," Mandelbrot said. "Often the pictures suggest the deeper truth underlying the formulas."
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