Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Fooled By Randomness Is A Standalone Book In Nassim Nicholas Taleb S Landmark Incerto Series, An Investigation Of Opacity, Luck, Uncertainty, Probability, Human Error, Risk, And Decision Making In A World We Don T Understand The Other Books In The Series Are The Black Swan, Antifragile,and The Bed Of Procrustes

Nassim Nicholas Taleb spent 21 years as a risk taker quantitative trader before becoming a flaneur and researcher in philosophical, mathematical and mostly practical problems with probability Taleb is the author of a multivolume essay, the Incerto The Black Swan, Fooled by Randomness, Antifragile, and Skin in the Game an investigation of opacity, luck, uncertainty, probability, human error

✈ [PDF / Epub] ✅ Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets By Nassim Nicholas Taleb ✸ –
  • Paperback
  • 368 pages
  • Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
  • Nassim Nicholas Taleb
  • English
  • 19 January 2017
  • 9780812975215

10 thoughts on “Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

  1. says:

    Yeah, you see I ve just checked and most of the other reviews of this book do pretty much what I thought they would do They complain about the tone This guy is never going to win an award for modesty and he probably thinks you are stupid and have wasted your life And it gets worse like that quote from Oscar Wilde that has tormented me for years Work is the refuge of people who have nothing better to do , this guy reckons that if you work for than an hour or so per day you are probably too stupid to know or deserve any better.Do you hate him yet I didn t I found him very amusing Admittedly, I probably wouldn t want to be stuck beside him on a long flight somewhere but I don t really go on long flights anywhere, so it doesn t make too much sense using that as a criterion for anything.Let s make a proper start I m going to tell you something about Heraclitus Probably best known for some pithy little quotes about change that he made up all by himself a very long time ago You can never stand in the same river twice All is flux Heraclitus s vision of the world was that what is important is change, everything else is transitory and impermanent Bertrand Russell claims that Heraclitus came from an aristocratic family that ended up dashed agains the rocks of change and not nearly so well off The other thing you might need to know about Heraclitus was that he was known as The Obscure.I was reminded constantly of Heraclitus while reading this book The author was also from a well off family that lost everything in the Lebanese War This also made him focus on change and the nature of unpredictable events Hardly surprising then that Popper is his favourite philosopher there is no ultimate truth, rationality is or less prejudice, everything is awaiting falsification.I have a love hate relationship with Karl Popper I can never work out if he is incredibly na ve as Taleb proudly boasts that he is or if he is terribly profound I do like his idea that we should constantly seek to prove our most beloved theories wrong but I also think that this level of scepticism is somewhat overstated There is a line in this book in which we are informed well, twice actually that Newton was proven wrong by Einstein Oh, was he just I guess all those people shot through the head by guns aimed after the careful application of Newton s laws of motion suddenly came back to life again then did they I guess Neil Armstrong, who got to the moon on Newtonian physics, not on the front seat of one of Einstein s light rays, might also have been a bit surprised at this remarkable over throw.Okay, I know, I m nitpicking, but then again, Taleb does ask for it He is so contemptuous of the ignorance and foolishness of others that it does become a bit of a sport for him The one thing you can say about Taleb is that he is not like Heraclitus when it comes to being obscure He is always very clear, very comprehensive and very interesting.We should now do some of the people he particularly hates And in the first rank of those he hates are probably Journalists Now, it is hard not to agree with him there He sees Journalism as basically part of the entertainment industry and believes they only really go wrong when they start to think they serve some purpose beyond entertainment Then there are business people, who he believes are mostly thick One of the main contentions of his book is that successful people are often successful by pure chance As such their abiding emotion should be gratitude However, as he repeatedly points out, we all tend to believe our successes are proof of our own genius, and that it is only our failings that are the result of bad luck and chance.This book gives a wonderful introduction to many of the fallacies we humans are all too prone to make He makes a cogent argument that we can never be purely rational because we need our emotions to short circuit the endless decision loop that each purely rational decision would involve This book is also a great introduction to probability theory without too many numbers to the theory without the calculus Some of his verbal explanations of mistakes are remarkably clear so clear they virtually jump from the page.One of the constant themes that I found particularly interesting was that we all suffer from hindsight bias This is something I will definitely be taking from this book The idea is that because what has happened in the past has happened we think it is the only thing that could have happened and then use it to predict what will happen in the future We forget that events in the past were also the culmination of probabilistic situations that have resolved one way and not another We forget that these events could just as easily have resolved in another equally probable outcome one that merely did not occur The range of fallacies that he shows spring from this one bias is quite remarkable.Now, I was recommended this book by someone called Yuri and the funniest story in the book also starred someone called Yuri It is when he is discussing Stock Market people applying for jobs with him One of the things they tend to put on their CVs is that they play chess They do this because playing chess means they are both analytical and strategic These are obviously good things to be in fact, I think I would like to be both of these things Since you can be both of these things just by declaring yourself to be them, we shall take it as read from now on that I am both of these Taleb tends to prefer to associate with Russian Physicists, not just because they think like him, but also because they can give him lessons in chess and teach him to play piano When one of these new stock market trader types applies for a job and says that they play chess Taleb brings this up and then says, And this is Yuri who will now continue the interview And here Yuri appears with a chess board in front of him I once watched a Russian playing a non Russian at chess The Russian spent the entire time laughing his head off after every move I don t know if it was because the moves made by his opponent were so useless that he truly found them funny or because this was all part of the psychological warfare but he did slaughter his non Russian opponent, so perhaps a bit of both.This is another book inspired by behavioural economics like Freakonomics and Predictably Irrational I m becoming a bit of a fan of behavioural economics.If you take this book in good humour, if you allow yourself to listen and not get worked up about his inappropriate tone god save us from those who complain about inappropriate tone you will learn something from this book and maybe even have a good time.And I can do a two word review of this book Shit Happens

  2. says:

    The modern world regards business cycles much as the ancient Egyptians regarded the overflowing of the Nile The phenomenon recurs at intervals, it is of great importance to everyone, and natural causes of it are not in sight John Bates Clark, 1898 Yeah, right Nassim Nicholas Taleb, 2001

  3. says:

    Renowned statistician George Box once said, All models are wrong, but some are useful The author of Fooled by Randomness is all over the first part of this statement, but apparently doesn t consider it part of his job as an iconoclast to say anything about the second Taleb goes to great lengths to point out how some of the original assumptions made in investments and finance have blown up in people s faces Yes, unusual events do happen often than a normal distribution suggests Yes, relationships among securities can change in meltdown scenarios And yes, people are regularly fooled into thinking luck is skill However, some market participants are clear sighted enough to see those shrouded risks for what they are and make better assumptions about how they should be traded off against expected returns These enlightened investors don t get the print, though, since they re not the straw men Taleb can knock down.Don t get me wrong We all like debunking stodgy, established wisdom when we see the holes If you re like Taleb, though, and see only holes, what you re left with is nothing What might there be in its place Some models, when tweaked, are still useful.In a brief moment of modesty, Taleb confesses to psychological weaknesses that can lead him to mistake noise for signal He seems rather smug about it all, though It s like he figures his ability to recognize himself as a fool puts him on a higher plane For the most part, his ego is openly displayed It s also coupled with an axe to grind an aggressive combination His fund has consistently underperformed though he would counter that he s positioned just right for the coming holocaust His investment strategy boils down to buying lots and lots of insurance contracts against rare occurrences that he thinks will be slightly less rare In actuality, he buys stock options, but the insurance metaphor illustrates the point The problem is he s so firm in his belief that the insurance companies have underestimated risks that he thinks all premiums are too low However, those selling options, armed with models that account for rare events appropriately, will charge than enough to cover those risks.Who will be fortune s fool Time will tell, but a provocateur like Taleb will in all probability be better known for his quasi epistemological exposition on unanticipated variability than for any true investment success.

  4. says:

    You can t learn anything from this book it s just a rant The author s message is an incessant din of, I m smart They re stupid trading rooms were populated by people..devoid of any introspection, flat as a pancake p28 these scientists devoid of the smallest bit of practical intelligence p 30The author likes the word devoid I was saved from the conversation of MBAs but i could not conceal my disrespect as he could not make out the nature of my conversation p.31 a journalist is merely to sound smart and intelligent to the hordes p 35He could have enlightened us about financial trading by giving us examples of how traders think on specific trades Instead he reverts to generalization using fantasy scenarios He deprecates losers without seeking to explain and understand those loser minds he excoriates Nor does he explain winner thinking for that matter except for the generality of praising caution.I stopped reading this book because the probability of finding anything enightening was approaching zero as the pages I read increased.

  5. says:

    I m not certain if it was this book I read or Black Swan by the same author Importantly I was not convinced by the blurbs or the reviews that there is any great significance in which one, if any, of these two books you may read.It is one of those books with an interesting premise that grows steadily less interesting as you read And as I read I had the growing feeling that the book could have been conveniently summarised in a dozen and a half bullet points with a few anecdotes tacked on for amusement This naturally led me to resent both the time I spent reading it and the author for stretching a good magazine article into book length.What the author has to say is interesting view spoiler at least at first, after a few repetitions it starts to get a bit stale hide spoiler

  6. says:

    I love the theses that he has in the book, but jesus christ, this is horribly written.I think the powerful ideas could have been condensed down to a New Yorker length article 1 We tend to see the survivors by hiding those who have failed, our understanding of many systems is skewed.2 Leveraged betting on conventional wisdom provides consistent returns in the short run, but can explode when something weird happens his black swan idea.3 You can reproduce the results of many systems by simulating randomness These simulations produce clear winners winners that we would have a hard time believing are due to randomness alone 3 has a lot of implications for wall street sets of investment vehicles as a whole underperform the averages after fees which I was surprised that he didn t bring up Another idea I really liked is how he describes opportunity sets He talks about how, for instance, in an upscale neighborhood a janitor who won the lottery may live next to a dentist Many of us take this information and attribute the likelihood for success as a janitor and a dentist to be closer than it actually is But being a janitor provides an individual with an opportunity set, with, say a 1% chance of having a high standard of living and a 99% chance of having a low standard living The dentist opportunity set may be 95% for high standard of living and 5% for low standard of living But if there are many janitors than dentists and you live in an upscale neighborhood where you only see the survivors , that relationship becomes muddled.Anyway, if you believe the preceding ideas, the book doesn t offer much else.

  7. says:

    One of my business school professors raved about this book I expected to get an entertaining and informative investment professional s take on how our irrational tendencies keep us from applying basic probabilities that would help us make better decisions.Instead, this book read like a pretentious, ranting diary In the introduction, the author brags that he ignored nearly all of the suggested changes his book editors made he labels book editors along with journalists, MBAs, and most social scientists as dimwits I think with significant editing, this book could have been quality There are several good anecdotes that illustrate how we ignore rational information and simple probabilities in daily life This would have been fun to read about without the author s smug self absorption and his personal attacks the author takes at least four pages to rant about the incompetence of journalist George Will and even takes a few punches at Warren Buffett I mean Warren Buffett I was barely able to bring myself to finish this book but did because I wanted to be able to give it a fair review My advice skip it

  8. says:

    Don t Be FooledThe author is a Legend in his Own Mind, and he reminds the reader of his brilliance every few pages I d rather have a waxen image of me stuck repeatedly in my tiny black eyes with voodoo pins than read another book by this man.

  9. says:

    This book is a lot of painful reading for little reward, as there was nothing truly remarkable or revelatory about Taleb s insights Most of what can be said of this book has already been said by other reviewers on GoodReads, so I will just briefly recap here he is incredibly unlikeable, and infuses the book with anecdote and a general disdain for most of humanity, while exemplifying many of the characteristics he rails against His insights will not be news to anyone who has read even a little bit about statistics, decision making under uncertainty, and behavioural economics Part II is markedly better than Part I because he finally delves into what I foolishly thought that the book was supposed to be about, but you have to make it through 130 pages of arrogance and badly composed narrative Part II would have been pretty good if I hadn t read a lot of other books on the topics, and for those who are interested in economic markets, I think this would interest you if you can move past the constant interjections of Taleb s personal philosophy Personally, my eyes glaze over when I read about trading, and I much prefer books like The Drunkard s Walk, which illustrates many of the same but also many concepts I was happy to read the section on Tversky and Kahneman, but I find their work infinitely interesting and readable than his summary, and you are spared the normative commentary Ironic for a man who criticises the normative dimensions of economics, Taleb certainly pushes a strong view of the world When Taleb does delve into intriguing concepts, I was frustrated with the fact that he explained them poorly and incompletely, and quickly moved on to another topic Much of the anecdote in the book could have been removed to make way for the real substance of the book I don t really disagree with his criticisms of MBAs, economists, traders, journalists, etc., but I also don t think anything he says is especially revealing of insightful for most of us who aren t involved in the trading world All in all, I am really puzzled by the popularity of this book, and I would strongly recommend against bothering with this one If you re really interested in randomness, I would recommend The Drunkard s Walk.

  10. says:

    Using his trademark aphoristic bent, Friedrich Nietzsche wrote Arrogance in persons of merit affronts us than arrogance in those without merit merit itself is an affront I ve come to realize that some people find Nassim Taleb s arrogance quite repugnant, but, personally, I find it rather charming I suspect that the same people who find Taleb s arrogance off putting are the people who wish they possessed a shred of his erudition Nietzsche was certainly on to something it s hard to avoid being offended by your betters.I think I first read Fooled By Randomness circa 2006 Recently, I felt a longing to reread Taleb s first non technical book again Wow, what a wise decision that was I actually digested from the rereading than I did from the initial reading and I digested quite a bit from the first reading Both times, I focused on reading the book very, very slowly Obviously, the fact that I spent the time to reread this book is indicative of how valuable I think it is.Known for his great wit, the baseball pitcher Vernon Louis Lefty Gomez was fond of saying that, I d rather be lucky than good This phrase, in essence, is one of the central themes of the book Although it sounds like a hackneyed platitude, Gomez, understood the role of randomness in our lives However, due to myriad biases, we humans often tend to attribute our successes to our skill and blame bad luck for our failures Is your rich neighbor or your boss really as skilled as she thinks she is Parts of the book are also about the hindsight bias and the narrative fallacy We humans are great at fabricating post hoc narratives about our world It s how we understand and misunderstand the world, but we must remember not to take our stories too seriously A mistake is not something to be determined after the fact, writes Taleb, but in the light of the information until that point One of Taleb s favorite philosophers is Karl Popper However, Taleb wasn t always enthralled with the man who espoused the beauty of empirical falsification Prior to rediscovering the great philosopher, Taleb went through a self identified anti intellectual phase early in his career as a trader He feared becoming a corporate slave with work ethics a term which he interprets to mean inefficient mediocrity Philosophy, to me, Taleb writes, became something rhetorical people did when they had plenty of time on their hands it was an activity reserved for those who were not well versed in quantitative methods and other productive things It was a pastime that should be limited to late hours, in bars around the campuses, when one had a few drinks and a light schedule provided one forgot the garrulous episode as early as the next day Too much of it can get a man in trouble, perhaps turn one into a Marxist ideologue As they say, the dose determines the poison.Speaking of poison, another interesting idea that Taleb espouses is that being too attached your beliefs is poisonous As he puts it Loyality to ideas is not a good thing for traders, scientists, or anyone I like to think about it this way, there are times we shouldn t trust experts precisely because they are experts This is because they are no incentives to be brutally critical of your own ideas A scientist or a preacher who has built their career on a certain idea obviously has a lot invested in that idea How likely are they to be critical of their own position when their livelihood depends on it being accepted What if they are putting out pseudo scientific nutritional guidelines that cause harm, but help them keep their job According to Popper there are only two types of theories 1 Theories that are known to be wrong, as they were tested and adequately rejected he calls them falsified.2 Theories that have not yet been known to be wrong, not falsified yet, but are exposed to be proved wrong.If you accept Popper s epistemology, like I also do, you can never claim that you know a theory to be true In other words, we can only gain knowledge through proving that things are false For instance, when I accidentally find myself in a theistic debate, people often challenge me to tell them how the universe came into existence When I say I don t know , they become infuriated How dare I have the gall to dismiss some of their religion s claims as not true without projecting my own claim to reality Yet, that s exactly the point I gain knowledge through knowing what s wrong, not through making claims about what I think is right.So what should we make of Taleb s extreme and obsessive Popperism in a practical sense How does he recommend we apply to it our lives I think it can be summarized in the following passage I speculate in all of my activities on theories that represent some vision of the world, but with the following stipulation No rare event should harm me In fact, I would like all conceivable rare events to help me My idea of science diverges with that of the people around me walking around calling themselves scientists Science is mere speculation, mere formulation of conjecture.The following thought experiment really helped me internalize this message Assume you participate in a gambling game that has 999 1000 chance of winning 1 Event A and a 1 1000 chance of winning 10,000 Event B Using some straightforward calculations the expectation of a loss is roughly 9 multiply the probabilities by the outcome for each event and then sum them Which event would you bet on I suspect that most people consider the frequency or probability in their decision, but this is totally irrelevant According to Taleb, even people like MBAs and economists with some statistical training fail to understand this point The magnitude of the outcome should be the only relevant factor in the decision Think of a trader who focuses on event B, sure, he is likely to bleed slowly for long periods of time, but when the rare event happens the payoff is astronomical compared to the losses Most of us, however, are schooled in environments that focus on games with symmetrical outcomes e.g., a coin toss The great psychologist and father of behavioral economics, Daniel Kahneman, also reminds us that we are loss averse and psychologically struggle with idea of bleeding out small losses for extended periods of time, even if there is eventually the opportunity for a huge payday.Once you realize that life is full of scenarios with asymmetrical payoffs, you re thinking if you re anything like me anyway will be permanently altered In fields like, say, writing, the outcomes are asymmetrical In other words, there is not a linear relationship with the number of hours spent writing and the amount of income one makes One may spend a long time writing for free and then finally catch a huge book deal For me, this is somewhat of a moot point because I d write for free without any other justification other than the fact that it s fun and makes me happy However, if all other things were equal, and I could also make money doing something I love, I would be very happy.Here s another piece of practical wisdom that I really enjoyed stay away from people of a competitive nature, as they have a tendency to commoditize and reduce the world to categories, like how many papers they publish in a given year, or how they rank in the league tables These are the same kinds of people who think that their GPA reflects their intelligence Or that the number of hours they spend running on a treadmill reflects their fitness Or that their inherited wealth says something about their genetic fitness Or that their expensive clothes make them beautiful I could continue on and on, but I think you get the point.I often hear those around me complaining about how life will be better when they achieve X Alas, I m human and guilty of making claims like this on occasion too The trouble is that, for most of us anyway, we won t really experience long term improvements in our happiness when we achieve X Throughout the book, Taleb devotes a fair amount of time alerting readers of what the literature in behavioral economics tells us about our irrational tendencies and biases.For example, there s the social treadmill effect you get rich, move to rich neighborhoods, then become poor again once you compare yourself to your new peers Then, you may work your ass off and get rich again, only to repeat the cycle If you want to feel worse about yourself, then the best piece of positive advice I know of is to hang around people who are wealthier than you I often try to remind myself that I m living a life that is materially better than 99.9% of all humans that have ever existed and yet I still have the audacity to claim that I don t have enough sometimes Pathetic.At one point in the book, Taleb writes I see no special heroism in accumulating money, particularly if, in addition, the person is foolish enough to not even try to derive any tangible benefit from wealth aside from the pleasure of regularly counting the beans In other words, money is only valuable if you use it as a tool to extract enjoyment from life.If it isn t clear, I think he is making reference to the likes of Warren Buffett, whom people tend to see as being virtuous simply for the fact that he has been able to accumulate hordes of money What I think many people fail to understand is that there is nothing virtuous about having money just for the sake of having it How someone earned what they have tells you a lot about them than how much they have We generally tend to think that having money signals other traits about a person, but I ll remind you that there is a lot of noise in those signals think inheritance Having money doesn t necessarily signal any superior traits.Those who want to make a lot of money are greedy and shouldn t try to deny that motivation Greed, however, is not necessarily a bad thing As Adam Smith taught us, another mans greed can create wealth for society as a whole provided the individual s wealth is ethically obtained.Do cigarette smokers understand probabilities If so, how can they rationally understand the ills of cigarettes and yet be foolish enough to smoke them anyway When I go for walks near hospitals I m always surprised by the number of people in scrubs perhaps some of whom are doctors and nurses who I assume are well aware of how harmful cigarettes are, but smoke them anyway Apparently, intellectually understanding something and being able to put it into practice are two different things.One thing Taleb also writes about is the selection bias in blogging and book reviewing The cover of my edition of Fooled By Randomness has an excerpt praising Taleb as one of the hottest thinkers in the world While I certainly agree, I couldn t help but smirk after reading that line can you say selection bias Any book that is worth reading twice is worth reading than twice When you love a writer, you want to hear his opinion on just about everything See at

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