Why didn’t people in finance pay attention to Benoit Mandelbrot?

Financial models are just like any other engineering tools. They approximate reality so they can be useful; but violate their assumptions or use them outside of their intended purpose, and they're likely to blow up in your face.

Now, it's absolutely true that gaussian's don't fit the market well - they only work sometimes. The thing is, everyone knows this, and tacks on additional features to explain the other phenomena. For instance, one might assume movements are normally distributed, except for short term spikes followed by high volatility. A good risk manager will throw non-gaussian volatility at a model during backtesting.

Mandelbrot's fractal story just didn't add much. The black scholes story has some convincing theoretical background (it assumes an "evil" market out to get you [1]). It misses things, but many of the things it misses can be added in, in a more or less convincing way - e.g., I understand the black scholes part of my model handles small movements, and the stochastic jumps handle the big ones.

All Mandelbrot's model gives me is a graph that kind of looks right - it doesn't give me any understanding.

[1] This is not the textbook description, but Bob Kohn convinced me this is the best way to think of it.

I'm confused - how do CDS (did you mean CDOs) blowing up prove that a fractal model of the market is better than the standard Black Scholes + assorted tweaks model?

A simple example to demonstrate that it is possible to predict things about this society to a nontrivial degree, is the products and activities of Apple Inc. They have great marketing foresight. But besides that, it sounds like they were building mobile devices for a long time before the touch-based smartphone market really took off in the last few years, enough to get it right. I'm not an Apple employee but I've been using an apple for ages. It seems to me like the people at the group had to very carefully understand what kind of questions there are in building something like that and making it work best. Granted, Apple has lots of problems, but what I'm trying to point out here is that by funding and working on the problems in order to get it right, is usually going to result in the best products which if able to be made available widely enough will become very popular for a period of time. As a result, objective-C has come into use much more, and jobs were opened.

The question of how to see and predict the course of the world lies in understanding what exists in front of us.

Products that were developed by copying others or with ignorance of the problems in the matter, will eventually exhaust themselves. On the other hand, products from a company that had see what exists in their life and generates work matching what they see in problems, assuming they are adept at protecting themselves in business, will be able to be more successful. Even people who don't have any university education can be successful through their knowledge of what is. So we have to be able to comprehend human consciousness in order to understand how an economy will move. Luckily, to understand consciousness is simple, if you are really willing to know. Consciousness is changed for better or worse by what happened to it.

In this society where people have undertaken large-scale industrial production on Earth, people in presently affluent circumstances can afford to use cell phones more profitably than without them. But in a different society, the problem that makes the economy exist may be different but the principle through which it exists remains the same. Things are either getting better or worse through what is in the principle.

This principle isn't precisely comprehended in those economists' education and that results in lots of thinking that turn out to be misguided. But things in reality are very simple. It's just that we need to search what kind of problems we have inside of us in order to know what they are like.