I remember reading that a butterfly on the otherside of the world can cause a hurricane on the opposite side, and it’s down to chaos theory, could someone explain what chaos theory is please? Thanks
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I usually remember the difference between random and chaotic. Random means it’s impossible to predict, no matter how much information you have. Which atom of uranium is going to decay is random. Chaotic means there’s so much information you have. The stock market is chaotic, not random. So is the weather.
Side note: part of the reason for the stock market crash in 2009 was software trading based on chaos theory. But it was poorly done and didn’t account for the rare wide swings in certain stocks. It’s detailed in the book The Quants by Wall Street reporter Scott Patterson.
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