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DIDIER SORNETTE: “CRISES ARE PREDICTABLE”

“Crises are predictable” said the economist Didier Sornette at TEDGlobal 2013. According to the risk economist we have been living by the illusions produced by the high economic growth that had been years ago. All these illusions have crumbled because of the Great Recession we are experiencing today and we did not expect.

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Therefore, what is “Great Recession”? Great Recession is called to the big economic crisis started in 2007 in the United States but it has become a global recession which affects in a very bad form to our lives.

The crisis that began in 2007 was not expected by anyone, it was as if it comes out of nowhere. Sornette says that: “Despite what standard risk management tools show, these outliers operate under special mechanisms that make them predictable, perhaps even controllable”. For people who do not have a great knowledge of economics may see it as something easy, but it is not. There are cases and cases. The cases in which the crisis is predictable are called by Sornette as “dragon-kings” and others as “black swans”.

To find where the “dragon- kings” cases are, we must take into account several things, but in particular “super-exponential growth”.  The super-exponential growth could be untenable and we can find these cases in several areas of study. By the use of it, Sornette predicted in December 2007 the crisis of the Chinese market. At first no one could believe those predictions. After presenting his prediction, namely three weeks after, the markets of China lost a 20% and by the end oj that year the markets have lost a 50% more.

The economist finally informs us that we have to observe all around us and maybe we are not going to be surprised again by a new big crisis.

Sources:

Thu-Huong Ha  (June 12, 2013 at 8:40 am EST). ‘“Crises are predictable”: Didier Sornette at TEDGlobal’. Retrieved Dec. 16, 2013 fromhttp://blog.ted.com/2013/06/12/crises-are-predictable-didier-sornette-at-tedglobal-2013/

Francisco Gnecco. (June 2013). ‘Didier Sornette: Cómo podemos predecir la próxima crisis financiera’. Retrieved Dec. 16, 2013 fromhttp://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis.html

Great Recession. (2014, January 27). In Wikipedia, The Free Encyclopedia. Retrieved 10:42, February 6, 2014, from http://en.wikipedia.org/w/index.php?title=Great_Recession&oldid=592654774

Didier Sornette. (2013, November 28). In Wikipedia, The Free Encyclopedia. Retrieved 11:29, February 6, 2014, from http://en.wikipedia.org/w/index.php?title=Didier_Sornette&oldid=583716495

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