Didier Sornette: How we can Predict the Next Financial Crisis

Good stuff here from Didier Sornette. Ā Sornette has done some superb risk on behavioral finance and risk management. Ā This recent Ted Talk is a must watch:

ā€œWhile financial crashes, recessions, earthquakes and other extreme events appear chaotic, Didier Sornetteā€™s research is focused on finding out whether they are, in fact, predictable. They may happen often as a surprise, he suggests, but they donā€™t come out of the blue: the most extreme risks (and gains) are what he calls ā€œdragon kingsā€ that almost always result from a visible drift toward a critical instability. In his hypothesis, this instability has measurable technical and/or socio-economical precursors. As he says: ā€œCrises are notĀ externalĀ shocks.ā€

An expert on complex systems, Sornette is the chair of entrepreneurial risk at the Swiss Federal Institute of Technology, and director of the Financial Crisis Observatory, a project to test the hypothesis that markets can be predictable, especially during bubbles. Heā€™s the author ofĀ Why Stock Markets Crash: Critical Events in Complex Financial Systems.ā€œ

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