The world through the lens of chaos and fractals

- Introduction
o For the past centuries, scientists and philosophers had faithfully
trekked the scientific landscape in a deterministic voyage. From our
deep curiosity, or perhaps fear, of Nature, a deterministic view of the
physical world serves to soothe the uneasiness in us. Indeed, scientific
achievements were honoured with their power to predict the outcomes
of an event, given a set of initial conditions. However, recent
researches in the past few decades on a new branch of physics that
deals with non-linear dynamic systems have put into question the
deterministic extent with which physical phenomena behaves. In
particular, Chaos Theory has caught the attention of the experts and the
public alike due to its vast and diverse implications on a range of
diverse fields in physical sciences as well as social sciences.

- Brief intro on the significance chaotic systems and fractals

o Chaotic systems are generally systems that display complex and non-
linear behaviours. Complexity in the system arises due to the
interaction of many agents giving rise to an emergent property that is
greater than the sum of the constituent properties. Non-linearity
implies that the system is sensitive to initial conditions such that any
minor changes get amplified through feedback loops. This is the origin
of The Butterfly Effect, where the flap of a butterfly’s wing in India
can cause a storm in Florida. This realization has led to the famous
conclusion by meteorologist Lorenz : long-term weather forecasting is
meaningless.
o Chaotic systems are seemingly random and unpredictable but in fact
are the result of deterministic functions. It is instructive to note that
determinism does not imply predictability. Example : the simple
recursive equation called the logistic map, xt+1=rxt(1-xt), exhibits very
different behaviours depending on the value of r. When r increases to a
critical point, the whole function plunges into chaotic motion.
Surprisingly, many natural phenomena such as the fluctuation of
animal population can be modeled by this equation.
o Another interesting property of chaotic systems is the formation of
fractal structures. Mandelbrot introduces the term “fractal” (comes
from the latin word fractus, meaning “broken”) which characterise
spatial or temporal phenomena that is continuous but not differentiable.
Unlike the more familiar concept in Euclidean geometry, every attempt
to split a fractal into smaller pieces results in the resolution of a
structure similar as before. This property of self-similarity under
different time-scale or spatial resolution is the hallmark of a fractal
process or a fractal object.

- Fractal structure in nature

o For many years humans have perceived the physical world through the
Euclidean geometrical description of shapes and patterns. This might
be partly due to the teachings passed down from ancient philosophers
 such as Plato, or that humans have an innate obsession with order,
smoothness and symmetry. However, the natural world is not at all
Euclidean. Clouds are not spheres; mountains are not cones; coastlines
are not circles, nor does lightning travel in straight lines. Indeed, many
natural objects exhibit fractal structures. On different spatial
magnifications, the same pattern reappears again and again. For
example, one can create an image of a fractal tree by using a simple
mathematical recursive function.

- Fractal structure in stock market

o One of the most heated debated in finance is whether the stock market
truly follows the random walk hypothesis or if there is any perceivable
patterns underlying the seemingly random fluctuations in stock prices.
o The stock market consists of numerous agents, or in this case investors,
all making decisions every second on whether he or she should buy or
sell a stock. Such systems are shown to be non-linear, dynamic
systems. Recent researches have shown that stock prices indeed have a
fractal structure. If one looks at the market prices in the monthly,
weekly, daily, and intra day time-scale bar charts, the structure has a
similar appearance. However, this resemblance does not imply that
stock prices can be predicted to rise or fall. This is because the stock
market, being a highly complex system, has sensitive dependence on
initial conditions which makes it almost impossible to predict.
o A number of thoughtful traders and experts have suggested that those
trading with intra day data such as five-minute bar charts are trading
random noise and thus wasting their time. Over time, they are doomed
to failure by the costs of trading. At the same time these experts say
that longer-term price action is not random. Traders can succeed
trading from daily or weekly charts if they follow trends. The question
naturally arises how can short-term data be random and longer-term
data not be in the same market? If short-term (random) data
accumulates to form long-term data, wouldn't that also have to be
random? As it turns out, such a paradox can exist. A system can be
random in the short-term and deterministic in the long term.

- Fractal structures in biology

o Recent researches in medicine have indicated that the rate of heartbeat
displays a chaotic pattern. It is shown that the rate of heartbeat
fluctuates not only in response to environmental factors, such as
posture or physical activity, but also during stationary conditions. This
inherent chaotic activity in the heartbeat may be due to multiple
interactions with other physiological rhythms such as respiration. As a
result, the heartbeats are not constant in time and do not show regular
periodicity. This new approach towards the analysis of a heartbeat can
help researchers find ways to put an abnormal heartbeat back into a
steady state.