The Physics of Wall Street: a brief History of Predicting the Unpredictable

Primordial Seeds 
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chant family, populated by amateur scholars and artists. Attending a 
grande école would have opened intellectual and professional doors for 
Bachelier that had not been available to his parents or grandparents.
But before Bachelier could even apply, both of his parents died. He 
was left with an unmarried older sister and a three-year-old brother to 
care for. for two years, Bachelier ran the family wine business, until 
he was drafted into military service in 1891. It was not until he was re-
leased from the military, a year later, that Bachelier was able to return 
to his studies. By the time he returned to academia, now in his early 
twenties and with no family back home to support him, his options 
were limited. too old to attend a grande école, he enrolled at the Uni-
versity of Paris, a far less prestigious choice.
Still, some of the most brilliant minds in Paris served as faculty at 
the university — it was one of the few universities in france where fac-
ulty could devote themselves to research, rather than teaching — and 
it was certainly possible to earn a first-rate education in the halls of the 
Sorbonne. Bachelier quickly distinguished himself among his peers. 
His marks were not the best at the university, but the small handful of 
students who bested him, classmates like Paul Langevin and Alfred-
Marie Liénard, are now at least as famous as Bachelier himself, among 
mathematicians anyway. It was good company to be in. After finishing 
his undergraduate degree, Bachelier stayed at the University of Paris 
for his doctorate. His work attracted the attention of the best minds 
of the day, and he began to work on a dissertation — the one Samuel-
son later discovered, on speculation in financial markets — with Henri 
Poincaré, perhaps the most famous mathematician and physicist in 
france at the time.
Poincaré was an ideal person to mentor Bachelier. He had made 
substantial contributions to every field he had come in contact with, 
including pure mathematics, astronomy, physics, and engineering. Al-
though he did attend a grande école as an undergraduate, like Bachelier 
he had done his graduate work at the University of Paris. He also had 
experience working outside of academia, as a mine inspector. Indeed, 
for most of his life he continued to work as a professional mining en-
gineer, ultimately becoming the chief engineer of the french corps de 
Mines, and so he was able to fully appreciate the importance of work-

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ing on applied mathematics, even in areas so unusual (for the time) as 
finance. It would have been virtually impossible for Bachelier to pro-
duce his dissertation without a supervisor who was as wide-ranging 
and ecumenical as Poincaré. And more, Poincaré’s enormous success 
had made him a cultural and political figure in france, someone who 
could serve as a highly influential advocate for a student whose re-
search was difficult to situate in the then-current academic world.
And so it was that Bachelier wrote his thesis, finishing in 1900. 
the basic idea was that probability theory, the area of mathematics 
invented by cardano, Pascal, and fermat in the sixteenth and seven-
teenth centuries, could be used to understand financial markets. In 
other words, one could imagine a market as an enormous game of 
chance. of course, it is now commonplace to compare stock markets 
to casinos, but this is only testament to the power of Bachelier’s idea.
By any intellectual standard, Bachelier’s thesis was an enormous 
success — and it seems that, despite what happened next, Bachelier 
knew as much. Professionally, however, it was a disaster. the problem 
was the audience. Bachelier was at the leading edge of a coming revolu-
tion — after all, he had just invented mathematical finance — with the 
sad consequence that none of his contemporaries were in a position 
to properly appreciate what he had done. Instead of a community of 
like-minded scholars, Bachelier was evaluated by mathematicians and 
mathematically oriented physicists. In later times, even these groups 
might have been sympathetic to Bachelier’s project. But in 1900, con-
tinental mathematics was deeply inward-looking. the general percep-
tion among mathematicians was that mathematics was just emerging 
from a crisis that had begun to take shape around 1860. during this pe-
riod many well-known theorems were shown to contain errors, which 
led mathematicians to fret that the foundation of their discipline was 
crumbling. At issue, in particular, was the question of whether suitably 
rigorous methods could be identified, so as to be sure that the new 
results flooding academic journals were not themselves as flawed as 
the old. this rampant search for rigor and formality had poisoned the 
mathematical well so that applied mathematics, even mathematical 
physics, was looked at askance by mainstream mathematicians. the 
idea of bringing mathematics into a new field, and worse, of using in-
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t h e p h y s i c s o f wa l l s t r e e t

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