Didier Sornette thinks he has found a way to predict stock-market crashes (17 November, p 30). Let's suppose he is right. He does a thorough analysis of the market's past behaviour and comes up with something that really works. Around the world, dealers switch on their computers and see that the market will crash on, say, 14 April, plus or minus two days.
They duly sell their holdings a few days ahead of time and the market crashes on the 10thfour days early. The modellers note the discrepancy and build it into their model. The next time around, they allow a leeway of plus or minus five days, and the crash happens eight days too early. Isn't feedback a wonderful thing?
Sornette may have found a way of "predicting" the market's past behaviour, but that's not exactly a challenge. Predicting its future behaviour is rather harder. Anyone who thinks ...
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