Volatility scales

In his repudiation of modern financial theory, Benoit Mandelbrot (the inventor of fractal geometry) deploys the controversial idea that "volatility scales."

He was referring to price volatility when he wrote that, but I think this gem has broader application. The observation hit me hard this week when I encountered it; I immediately thought of enormous volatility in my infantry operations so many years ago and the upward scaling of that volatility. That was in the day when our mission was "to close with and destroy the enemy." Do they even use language like that anymore?

I happened to be reading Brent Nosworthy's Civil War opus, the Bloody Crucible of Courage in tandem with Mandelbrot, specifically Nosworthy's chapter 14, "The Psychological Basis of Tactics." In that essay, Nosworthy does a finely nuanced job, arguing from vivid anecdotes, that the Civil War charge (or rush) and the Civil War panic or route originated from virtually the same psychological state.

Mark that. Volatility anyone?

And he showed, anecdotally, how the contagion spread (both attacking and fleeing) and the measures taken to both induce the underlying psychological state and then to channel it. I especially liked his analysis of British attacking psychology (calm, controlling), French attacking psychology (inducing high emotion in the attackers), and the Dutch approach (complex control to overwhelm defenders psychologically).

I'm not sure how the volatility scaling argument will end on Wall Street, but "volatility scales on the battlefield." You could make that a motto to be learned by junior leaders.

More on Nosworthy later this week.