In his book Sapiens: A Brief History of Humankind, author Yuval Noah Harari distinguishes between two kinds of chaos. A "level one" chaotic system is a system that does not react to predictions about it. The weather, for example, is a level one chaotic system. The weather is influenced by myriad factors so complex that extremely small variations in the strength of forces and the way they interact produce huge differences in outcomes. But it is possible to build computer models that take more and more of these differences into account and gradually they produce better and better weather forecasts. Judging from the vacillating rate of correct weather predictions, some may doubt this assertion but theoretically, at least, Harari’s observation makes sense. Markets are a "level two" chaotic system because they are affected by predictions about what will happen. Harari uses the example — not that such a thing exists — of a computer program that forecasts with 100% accuracy what the price ...
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