Thought this would be interesting to all of you folks who are interested in making sense of the recent financial crisis (and/or trying to figure out if there is a microfinance investing bubble in India). Physicists Didier Sornette, Ryan Woodard and some others have been working to create predictive ‘bubble diagnostics’. These diagnostics are based on non linear positive feedback models that have their basis in imitative human behavior. They are running The Financial Crisis Observatory which they describe as “a scientific platform aimed at testing and quantifying rigorously, in a systematic way and on a large scale the hypothesis that financial markets exhibit a degree of inefficiency and a potential for predictability, especially during regimes when bubbles develop”.
Last year they published a paper called Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis in … Read More »