Referencing the Original Discovery
The modeling technique displayed in Figures 1 through
4 is over six decades old, and Mandelbrot knows it. This is clear
because in dismissing Elliott two years ago7, he quoted from
a volume8 that includes all of Elliott’s major work as well
as the illustrations contained in Figures 1 and 3.
Mandelbrot’s long-delayed response to years of
questions about the significance of Elliott’s work was to pen the
above-mentioned brief condescending dismissal of Elliott’s discovery. As
you will see in the upcoming discussion, Mandelbrot’s summary of Elliott
is half ad hominem attack and half misrepresentation, the net
effect of which is to malign Elliott both by innuendo and omission.
Worse than the condescension, however, is that Mandelbrot appears to
have effected it, if his Scientific American article is any
indication, in order to ignore the man and claim his predecessor’s
breakthrough as his own.
Even in his dismissal, Mandelbrot himself could not
avoid stating the obvious truth that "Elliott’s diagrams are
qualitatively reminiscent of certain self-affine generators…."9
Mandelbrot knew this before he wrote his article for Scientific
American, yet it still reads, "The novelty (and surprise)
is that these self-affine fractal curves exhibit a wealth of structure –
a foundation of both fractal geometry and the theory of chaos." This is
no novelty or surprise, but rather an observation with sixty years of
history involving six major authors,10 who have produced a
nearly continuous stream of literature on the Wave Principle since 1938.
If, as Mandelbrot says, these curves indeed reveal the foundation of
both fractal geometry and the theory of chaos, then according to
Mandelbrot’s own formulation, Elliott deserves the credit for
discovering and elucidating it.
Although Mandelbrot’s words (and lack thereof) imply
that in the scientific world, Elliott is a nonentity, this is not the
case. Physicist Didier Sornette of the Department of Earth and Space
Science and the Institute of Geophysics and Planetary Physics at the
University of California at Los Angeles, who has been systematically
conducting pioneering studies in the fractal nature of markets, along
with colleagues Johansen and Bouchaud stated the following three years
ago in their 1996 study, "Stock Market Crashes, Precursors and
Replicas," which appeared in France’s
Journal de Physique:
It is intriguing that the log-periodic structures
documented here bear some similarity with the "Elliott waves" of
technical analysis [citation Elliott Wave Principle by Frost
and Prechter]…. A lot of effort has been developed in finance both by
academic and trading institutions and more recently by physicists
(using some of their statistical tools developed to deal with complex
times series) to analyze past data to get information on the future.
The "Elliott wave" technique is probably the most famous in this
field. We speculate that the "Elliott waves"…could be a signature of
an underlying critical structure of the stock market.11,12
As honorable scientists should, Sornette et al.
cite a proper reference source in this and several other studies.
This is how Mandelbrot phrases his only mention that
any other knowledge preceded his "new modeling technique":
…this concept is not a rootless abstraction but a
theoretical reformulation of a down-to-earth bit of market folklore –
namely, that movements of a stock or currency all look alike when a
market chart is enlarged or reduced so that it fits the same time and
price scale.13
Here Mandelbrot alludes to a real-world foundation
for his otherwise "rootless abstraction" yet omits referring to the
empirical work that took R.N. Elliott two decades to undertake in order
to lay that foundation. Mandelbrot ascribes the empirical foundation he
invokes to "market folklore," which it emphatically is not. Most
economists and even most financiers assign the cause of near-term trends
to "psychology" and of long-term trends to economics and politics. They
resist the idea of financial market self-similarity in both cause and
appearance. If this were not the case, then Mandelbrot’s article would
have been mostly superfluous, not the "novelty" it claims to be. The
truth is that in the financial world, the idea that market movements at
all scales look alike has been entirely the domain of the Elliott’s Wave
Principle. Elliott wrote two books, twelve articles and four essential
essays on the subject, all of which are contained in the volume from
which Mandelbrot quoted. Folklore is an oral or fable tradition with
misty origins; the original source of this remarkable idea is on the
written record. This "folklore" comment, absent any other reference,
from someone who knows the true source of the idea, appears to be
designed to avoid crediting the man who discovered that market patterns
are multifractal.
Regardless of what one thinks of Elliott’s occasional
unscientific incaution, which gave Mandelbrot ammunition for his
dismissal, it does not diminish his achievement. One cannot concede as
much to Mandelbrot’s incaution. It is one thing to dismiss another’s
work as valueless. It is another to claim someone else’s work as one’s
own. To combine the two acts is hypocrisy.
Continue with
Prechter's Response
Scientific
Controversy Introduction -
Mandelbrot's Article
- Letter to the
Editor
Prechter's Response -
Follow-up Responses
-
Socionomics
