Michael of comment board fame had lent me Benoit Mandelbrot and Richard Hudson’s *The (Mis)Behavior of Markets* a while ago, and I finally had a chance to read it. The verdict? Still not sure.

Mandelbrot offers an eloquent critique of contemporary financial theory, and speculates on some alternatives. The limitations of the financial theory presented in textbooks is well known: rare events happen more often than predicted by a normal distribution (so-called “fat tails”), and changes in the volatility of financial time series tend to persist, so this part of Mandelbrot’s book is not original, while he does a good job of explaining it.

The part that *is* new is a series of alternative proposals for financial models. Unfortunately, since the book is written for a general audience, it’s thin on technical details, so I’m not really sure if they’re a good idea or not. I tracked down some links which I’ll work through as I get the chance:

- SmartQuant has a bunch of links to papers
- Levy distribution
- MIT has an online course on Power laws
- Cosma Shalizi has a weblog post criticizing the tendency to see power law distributions everywhere.