The Physics of Wall Street: a brief history of predicting the unpredictable

By James Owen Weatherall

After the economic meltdown of 2008, Warren Buffett famously warned, ‘Beware of geeks bearing formulas.’ But as James Weatherall demonstrates, not all geeks are created equal. Taking us from fin-de-siècle Paris to Rat Pack–era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how a special breed of physicists successfully brought their science to bear on some of the thorniest problems in economics.

While the crisis was partly a failure of mathematical modelling, it was even more a failure of some financial institutions to think like physicists. Models — whether in science or in finance — have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn’t understand their purpose, and didn’t care. It was a catastrophic misuse of science.

The solution, however, is not to give up on models; it’s to make them better. Weatherall reveals the people and ideas on the cusp of a new era in finance. We see a geophysicist predict a massive stock-market crash by using a model designed for earthquakes. We learn about a physicist-run hedge fund that earned 2478.6% over the course of the 1990s. And we discover how an obscure idea from quantum theory might soon be used to create a far more accurate consumer price index.

Both persuasive and accessible, The Physics of Wall Street will change how we think about our economic future.

• Language: English
• Publisher: Scribe Publications
• Release date: Mar 25, 2013
• ISBN: 9781922072252

James Owen Weatherall

James Owen Weatherall is a physicist, philosopher, and mathematician. He holds graduate degrees from Harvard, the Stevens Institute of Technology, and the University of California, Irvine, where he is presently an assistant professor of logic and philosophy of science. He has written for Slate and Scientific American. He lives in Irvine, California.

Reviews for The Physics of Wall Street

[jcvogan1 · Rating: 3 out of 5 stars]

Story-based overview of some of the various physicists and mathematicians who have done work in finance. Very light on technical detail. Reads quick.

[chellerystick · Rating: 4 out of 5 stars]

Hard to stop reading. More about the history of physics on Wall Street than about what the physics of Wall Street is... but that is kind of his point.

[gdemange_2 · Rating: 4 out of 5 stars]

Good book for the novice physicist and the stock market practioner. Physicists seem to be showing up in many other disciplines as well they should since the world largely operates through the laws they have discovered. Mathematics is the basis for physics and similarly for the stock market so why not look at where the two cross. This book is easy to read, gives a good historical background of physicists (scientists) who touched on issues facing markets, and reinforces the idea that predicting the market is in some way predictable. Read it before you dismiss it.