# Chaos Theory

#### aricho

Is it possible to predict the Markets using Chaos Theory? (or predict anything) If you have seen the aussie movie "the bank" you willl know thats what he does

Thanks

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#### neurocomp2003

its possible to do research in markets using chaos theory,fuzzy logic, neural nets, GAs...but to PREDICT 100% accuracy is another thing.

hmm

haha yer

#### Nusc

aricho said:
Is it possible to predict the Markets using Chaos Theory? (or predict anything) If you have seen the aussie movie "the bank" you willl know thats what he does

Thanks
There's also the movie Pi, it's pretty sketchy though.

#### matt grime

Homework Helper
hmm, "chaos theory" is such a vague term really. in essence it is non-linear dynamics, so it is arguably the study of any system whose equations are non-linear. there is more to it than that, obviously, but there is no reason that we cannot use the styudy of non-linear systems to model things like markets, indeed i believe they do.

if you're not familiar with linear and non-linear then let's have an example.

a pendulum is modelled by an equation

$$\ddot{\theta}=k\sin\theta$$

where $\theta$ is the angle to the vertical of the "string" this is a nonlinear equation that we cannot solve so we linearize it and replace $\sin\theta$ with $\theta$ a linear equation we can solve. non-linear dynamics is essentially trying to study the harder equations without this approximating step,

#### saltydog

Homework Helper
aricho said:
Is it possible to predict the Markets using Chaos Theory? (or predict anything) If you have seen the aussie movie "the bank" you willl know thats what he does

Thanks
That's not going to work. It sounds cool I know and oh yea, to get a real rise with people mention "Mandelbrot" and fractals. If markets exhibit chaos then by the very nature of chaotic dynamics, we are forever doomed to accurately predict their long-term behavior because of the nature of "sensitive dependence on initial conditions": Chaotic systems exhibit this property and it means that no matter how accurate we are in estimating the initial conditions of a system, we will always be off by a slight error. In chaotic systems, these errors grow with time until their magnitudes become equal and exceed the quantity of that which is being measured. Thus, prediction past these points is no better than guessing.

Edit: Oh yea, Peitgen in "Chaos Theory" does a marvelous job of describing Chaos Theory and gives fine examples how sensitive dependence disrupts long-term prediction of chaotic systems at every turn.

Edit2: Oh yea, just for the record, the non-linear pendulum can be solved using elliptic integrals.

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#### philosophking

<i>There's also the movie Pi, it's pretty sketchy though.</i>

Sketchy??? I guess I'm confused by your use of the term. I think it's an excellent movie, and would recommend it.

#### juvenal

Sorry dude - "Pi" was a pretty bad movie geared toward impressing non-scientist, non-mathematician types. Low-budget, horrible acting, horrible effects, and pretentious script.

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