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

Tyranny of the Dragon King 
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Sometimes these fractures combine and grow into slightly larger frac-
tures. Sometimes these slightly larger fractures grow into still-larger 
fractures, and so on, until you get a very large fracture. these fractures 
follow a pattern we have already seen: they are fractals, where the ti-
niest fractures look just like the larger ones. the difficulty is that tiny 
fractures don’t affect the behavior of the pressure tanks, whereas the 
largest fractures can be disastrous. But it’s hard to say what makes a 
large fracture different from a small one, at least in terms of the frac-
tures’ causes. A large fracture is just a small one that never stopped 
growing; very large, disruptive fractures are no different in kind from 
the very small benign ones.
this relationship between large and small fractures posed a major 
problem for the rocket scientists. It meant that even under ordinary 
working conditions, when the Kevlar was usually stable, there was al-
ways a chance that a normal tiny fracture would spontaneously grow 
into a major one and destroy the rocket. Any given fracture, even the 
very smallest ones, had the capacity to become explosive. When Sor-
nette joined the team, the other scientists were at a loss. to put these 
pressure tanks to good use, they needed to figure out how to use them 
safely — that is, they needed to figure out the conditions under which 
ruptures would occur. But this seemed an impossible task. the rup-
tures seemed, quite simply, random.
Until Sornette noticed a pattern.
normally, the parts of a pressure tank are more or less independent, 
like workers in the nineteenth century, before collective bargaining. If 
you kick a pressure tank, for instance, there might be some vibrations, 
but these will die off pretty quickly, and even if you manage to put a 
dent in the part of the tank where your foot made contact (unlikely), 
you won’t do any damage to the rest of the tank. Likewise, if a small 
fracture appears under these circumstances, it won’t produce a rup-
ture. this is a bit like when you try to pop an only partially inflated 
balloon: a pin doesn’t have much of an effect.
Sometimes, though, the various parts of the material begin to con-
spire with one another. they display a kind of herding effect. this can 
happen for various reasons: heat, say, or pressure, or other external 
effects. When this occurs, it’s almost as if the various parts of the ma-

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terial have unionized. A kick in one place can ripple through a whole 
tank, with small localized influences leading to dramatic effects, much 
as a pinprick in one place can make an inflated balloon tear itself apart. 
this kind of conspiracy is sometimes called self-organization, because 
no matter how random and uncorrelated the materials are to begin 
with, if they are placed under stress, they will begin to coordinate their 
activity. It’s as though the bits and pieces of material begin to stir under 
pressure, gradually deciding to join together in common cause.
Sornette didn’t come up with the notion of self-organization, 
though he has done as much work on the theory as anyone. Instead, 
he realized something slightly different. He finally understood how a 
small labor strike differs from a catastrophic one. All strikes are caused 
by the same sorts of sparks: an egregious injury; an unfair termination; 
cut wages. You might think that there’s no way of telling which such 
events will lead to a nationwide walkout. A large strike looks like a 
small strike that, for whatever reason, simply didn’t stop. So, too, with 
the microfractures that, under some circumstances, seem to explode 
into ruptures that tear a material apart. But the biggest strikes require 
something more than just a spark: they require a labor movement, 
with a high degree of structure and a capacity for coordinated action. 
they require a mechanism for system-wide feedback and amplifica-
tion, something to transform an otherwise small event into a large 
one. In other words, if you want to predict a major strike, don’t look 
for the grievances. those are always there. Look for the unions. Look 
for telltale patterns of self-organization. coordination, rather than the 
pinpricks, is what really leads to critical events. And Sornette would 
take that insight straight to the bank.
Sornette was born in Paris but raised in the southeast of france, in a 
town called draguignan on the french riviera. draguignan is about 
an hour by car from Saint-tropez, the beautiful Mediterranean resort 
town famous as a jet-set vacation spot. through high school, Sornette 
would often go to Saint-tropez to sail and wind-surf. once he gradu-
ated, he moved up the coast to nice where he enrolled in a preparatory 
school to study for the grande école admissions exam. (It was at a simi-
lar kind of school in Lyon, a couple of hundred miles north, that Man-
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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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