A Mathematician Plays the Market

John Allen Paulos

An extract from John Allen Paulos's latest book featured in the business section of my Sunday paper a few months ago and it described how Paulos, bestselling author of several books which promote the public understanding of maths, lost tens of thousands of dollars dabbling in technology stocks. In particular he had been seduced into purchasing WorldCom stock back when its share price peaked and had continued to buy more as the price fell in order to "average down" his loss.

I thought it sounded intriguing at the very least. Here was a professor of maths whose books offer enlightenment to a generally muddle-headed public in matters of logic, probability and numerical reasoning. Yet by his own admission he slipped easily into an entirely irrational investment strategy. Towards the end his behaviour was almost that of an addict. By that I mean he hid the level of his exposure from his family, promised himself he would bail out next day (then ended up buying more shares), and became unable to go more than a few minutes without checking WorldCom's stock price.

But there's very little in the book itself which wasn't already covered in my paper's extract, at least when it comes to Paulos's personal story. I was hoping to learn more about how a rational man explains his own irrational behaviour. Instead the book is a series of mildly interesting essays on the stock market as seen from a mathematical standpoint. His conclusion? The stock market is profoundly complex and its behaviour intrinsically unpredictable. To be fair to the author he explains perfectly clearly how and why this is the case. But if it's the psychological side of the story which interests you then, like me, you're going to be disappointed.