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

Tyranny of the Dragon King 
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expertise in a new area is difficult, and for most people, once or twice 
is often enough for a lifetime.
But Sornette has made contributions to more than a dozen fields, 
ranging from material science to geophysics, to decision theory (a 
branch of economics and psychology), to financial markets, even to 
neuroscience (he has done considerable work on the origin and pre-
diction of epileptic seizures). He thinks of himself as a scientist in the 
broadest sense, as someone conversant in the sciences at large. He 
studied physics as a young man, not because he believed he wanted to 
devote his life to the field, but because he thought of physics as a kind 
of mother science. He likes to quote the philosopher descartes, who in 
his magnum opus Discourse on Method wrote that the sciences are like 
a tree: metaphysics is the roots, physics is the trunk, and everything 
else is the branches. (nowadays, Sornette is more modest about his 
training. He thinks of his background in physics as an excellent prepa-
ration for approaching many problems but says that the intellectual 
challenges of fields like economics and biology are at least an order of 
magnitude more difficult than those posed by physics.) despite the va-
riety of topics, however, much of Sornette’s work involves identifying 
patterns endemic to the structures of complex systems and using these 
patterns to predict critical phenomena: ruptures, quakes, crashes.
one of Sornette’s earliest scientific projects involved ruptures in 
Kevlar, a synthetic fiber developed in 1965 by du Pont (and heir to the 
nylon tradition described earlier). It is a famously strong substance, 
used in the bulletproof vests worn by police and soldiers, and even as a 
replacement for steel in suspension bridge cables. It is stronger at very 
cold temperatures than at room temperature, and it is largely stable at 
extremely high heat, at least for short periods. It’s a marvel of modern 
chemistry.
these properties have made Kevlar a very attractive material for 
all sorts of high-tech applications. It was one of these — space flight
— that led Sornette to become involved in Kevlar research. Initially, 
the space race was a two-sided affair, between the United States and 
the Soviet Union. But by the mid-1960s, the leaders of several Western 
european nations began to realize that europe couldn’t rely on the lar-

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gesse of the superpowers to further european economic, military, and 
scientific interests in space. At first, europe’s entry into the space race 
was slow and scattered, but then in 1975, the various nascent organiza-
tions that had been formed over the previous decade combined into 
what is now the european Space Agency. By this time, the space race 
had begun to slow, with further escalation proving too costly for both 
superpowers. this left an opportunity for the new european agency 
to rapidly catch up and assert itself as a dominant force in the space 
industry. A principal part of the new european initiative was a series 
of cutting-edge rockets called Ariane, designed as satellite delivery 
mechanisms.
In 1983, the still-young european Space Agency began developing a 
new variety of Ariane rocket, the Ariane 4, to launch commercial sat-
ellites, particularly communication satellites. (It was enormously suc-
cessful — at one stage, it was used for roughly half of all commercial 
satellites launched worldwide.) the new rocket was designed by the 
french space agency, cneS, but manufactured by private contractors. 
It was one of these private contractors, a firm called Aérospatiale, that 
contacted Sornette.
rockets, including the Ariane, often require several substances that 
need to be kept under very high pressure in order for combustion to 
occur. the chemicals are stored in vessels called pressure tanks — es-
sentially, high-tech water balloons intended to maintain the necessary 
high pressures without bursting under the strain. the researchers at 
Aérospatiale who contacted Sornette were studying the behavior of 
pressure tanks that would be used in the Ariane 4. these tanks were 
made out of Kevlar. Usually, the tanks were strong, even at very high 
pressures. except when they suddenly exploded. the group at Aéro-
spatiale was trying to determine the conditions under which this 
would happen.
We know that if a balloon is inflated sufficiently, it will nearly always 
pop when pricked with a sharp pin. other substances, though, can 
be trickier to figure out. Materials like Kevlar will eventually rupture 
from the strain of high-pressure contents, but determining precisely 
when, or why, is a surprisingly difficult problem. When substances like 
Kevlar are put under significant stress, tiny fractures begin to appear. 
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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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