The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant factors. The chaos theory name originates from the idea that the theory can give an explanation for chaotic or random occurrences. The first real experiment in the chaos theory was done in 1960 by a meteorologist, Edward Lorenz. He was working with a system of equations to predict what the weather would likely be.
In 1961, he wanted to recreate a past weather sequence, but he began the sequence midway and printed out only the first three decimal places instead of the full six. This radically changed the sequence, which could reasonably be assumed to closely mirror the original sequence with only the slight change of three decimal places. However, Lorenz proved that seemingly insignificant factors can have a huge effect on the overall outcome. The chaos theory explores the effects of small occurrences dramatically affecting the outcomes of seemingly unrelated events.
The chaos theory has been applied to many scientific areas, including finance. In finance, the Chaos theory has been used to argue that price is the last thing to change for a security. Using the chaos theory, a change in price can be determined through mathematical predictions of the following factors: a trader's personal motivations (such as doubt, desire or hope that are nonlinear and complex), changes in volume, acceleration of changes and momentum behind the changes. The application of the chaos theory to finance remains controversial.
For more information on stock theories see The Basics Of Game Theory and Modern Portfolio Theory: An Overview.
This question was answered by Bob Schneider.

What's the difference between agency theory and stakeholder theory?
Learn how agency theory and stakeholder theory are used in business to understand common business communication problems ... Read Answer >> 
Why is Game Theory useful in business?
Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy ... Read Answer >> 
Is a good's production cost related to its value?
Learn about the history and debate regarding the metrics used to determine the value of a good and which theories place emphasis ... Read Answer >> 
Does the tradeoff model or the pecking order play a greater role in capital budgeting?
Understand the difference between the tradeoff theory and the pecking order theory, and learn what these theories tell companies ... Read Answer >> 
How has the Internet contributed to the long tail theory of marketing?
Learn how the Internet has contributed to the longtail theory of marketing and how this strategy is being applied by modern ... Read Answer >> 
How does behavioral economics treat risk aversion?
Learn about the relationship between decisionmaking and risk, as described by one of the foundational theories in behavioral ... Read Answer >>

Investing
7 Controversial Investing Theories
We take a closer look at the theories that attempt to explain and influence the market. 
Investing
Globalization and the Butterfly Effect
Discover how the butterfly effect applies to global capital markets and witness how chaos theory can describe market volatility. 
Investing
Interest Rate Predictions With Expectations Theory
The expectations theory uses longterm interest rates to predict future shortterm interest rates. 
Trading
Manipulating Facts to Fit a Theory: A Dangerous Trading Practice
This practice is common with experienced and new traders, and it can lead to huge losses. Find out how to avoid it. 
Investing
Efficient Market Hypothesis
An investment theory that states it is impossible to "beat the market". 
Insights
Dow Theory
Learn about the foundation upon which technical analysis is based. 
Insights
Prisoner's Dilemma
Learn more about this classic game theory scenario.

Chaos Theory
A mathematical concept that explains that it is possible to get ... 
Biased Expectations Theory
A theory that the future value of interest rates is equal to ... 
Demand Theory
A theory relating to the relationship between consumer demand ... 
New Growth Theory
An economic growth theory that posits humans' desires and unlimited ... 
Expectations Theory
The hypothesis that longterm interest rates contain a prediction ... 
Labor Theory Of Value
An economic theory that stipulates that the value of a good or ...