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

The Prediction Company 
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He lingered afterward and then followed Ingerson home. on the way, 
farmer announced his newfound career goal.
It was an unlikely friendship. But farmer and Ingerson were kin-
dred spirits, stuck for different reasons about as far away from the cen-
ter of the scientific universe as they could be. for Ingerson, farmer 
was a welcome diversion, a smart student ready to talk seriously about 
all sorts of scientific topics. for farmer, though, Ingerson was pure 
inspiration. He changed his life.
Ingerson soon started a new group, which he called explorer Post 
114, with his home as clubhouse. the explorer groups were a subsid-
iary of the Boy Scouts of America, intended for older children to learn 
by doing. farmer was the inaugural member of Ingerson’s group, but 
he was soon joined by others. the explorers shared some features with 
the Boy Scouts — they went camping and hiking in the desert — but 
the real focus was on tinkering and building things, like ham radios 
and dirt bikes.
officially, to join an explorer post one needed to be at least fourteen 
years old. But one day in 1966, a younger boy was invited to come to a 
meeting. He had been asked to give a lecture on new radio technology, 
a topic on which he was apparently an expert. though he was only 
twelve, the other explorers recognized norman Packard as one of their 
own, and he was immediately welcomed into the group as the new 
electronics guru. Unlike farmer, Packard had known he wanted to be 
a physicist from an early age. He seemed made for it. After all, it was 
his precocious expertise that earned him an invitation to the explor-
ers. Packard and farmer quickly became friends.
Ingerson lasted for two more years in Silver city before he got a 
job at the University of Idaho. But in just four years, he had succeeded 
in shaping the lives of two men who would go on to become world-
class physicists. When Ingerson left, farmer was sixteen and a junior 
in high school (Packard was two years younger). Bored with Silver 
city and anxious to follow his friend to conquer new territory, farmer 
decided to apply to the University of Idaho a year early. He got in, and 
instead of finishing high school in Silver city, he moved into Ingerson’s 
attic in Moscow, Idaho, to start his career as a physicist. After a year 

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in Idaho, though, farmer was ready for bigger pastures. In 1970, he 
transferred to Stanford University. true to his ambitions, he majored 
in physics — laying the groundwork for a career that would change sci-
ence, and finance, forever.
the ideas at the heart of farmer’s and Packard’s work were first devel-
oped by a man named edward Lorenz. As a young boy, Lorenz thought 
he wanted to be a mathematician. He had a clear talent for mathemat-
ics, and when it came time to select a major at dartmouth, he had few 
doubts about what he would choose. He graduated in 1938 and went 
on to Harvard, planning to pursue a Phd. But World War II interfered 
with his plans: in 1942, he joined the U.S. Army Air corps. His job was 
to predict the weather for Allied pilots. He was given this task because 
of his mathematical background, but at that point, at least, mathemat-
ics was of little use in weather forecasting, which was done more on 
the basis of gut feelings, rules of thumb, and brute luck. Lorenz was 
sure there was a better way — one that used sophisticated mathematics 
to make predictions. When he left the service in 1946, Lorenz decided 
to stick with meteorology. It was a place where he could put his train-
ing to productive use.
He went to MIt for a Phd in meteorology and stayed for the rest 
of his career — first as a graduate student, then as a staff meteorolo-
gist, and finally as a professor. He worked on many of the mainstream 
problems that meteorologists worked on, especially early in his career. 
But he had some unusual tastes. for one, based on his experience in 
the army, he maintained an interest in forecasting. this was consid-
ered quixotic at best by his colleagues; the poor state of forecasting 
technology had convinced many that forecasting technology was a 
fool’s errand. Another oddity was that Lorenz thought computers —
which, in the 1950s and 1960s, were little more than souped-up add-
ing machines — could be useful in science, and especially in the study 
of complicated systems like the atmosphere. In particular, he thought 
that with a big enough computer and careful enough research, it would 
be possible to come up with a set of equations governing how things 
like storms and winds developed and changed. You could then use the 
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