Fooled By Randomness

Fooled By Randomness

Fooled By Randomness

How do so many people get rich? How did that idiot neighbour of yours across the street afford his new Lamborghini? How is that guy winning at the roulette table? Is that really a face on the Moon? Does that star constellation really look like a bear?

Skill or luck? Determinism or random chance? Nassim Nicholas Taleb, the author of Fooled By Randomness, argues for the latter.

Bias Bias Bias
It’s the way the human brain is wired. We are very susceptible to cognitive biases, even if we like to think we aren’t. You might be a hardline scientist/statistician, but you go all wobbly when you see someone raking in loads of cash at the roulette tables or by trading in the stock market. You jump in and poof go your life savings. Things look a lot less random once they’ve already happened. Fact: the probability that something has “happened” is 100%.

Even if you know that, most people still think about win/loss scenarios as 50-50. I might either lose money in the stock market or gain it. However, the probability is skewed. It’s not always 50-50 and it’s usually not in your favor.

Humans see patterns where they don’t exist at all. Look at the stars tonight, you can draw whatever you want when you trace lines between them. Proof: look at all the different schools of astrology: western, indian, chinese etc. We are very biased creatures.

Cause-effect
The author regularly criticises the fields of economics, history and journalism. Fields that have cause-effect as a major pillar. Think back to those history tests in school: what were the causes of WW1? The downfall of the USSR? Was there always a rigid cause, or was it just the random chance that something bad happened? There are several possibilities that could have occurred. Economics bases a lot of its models on historical data. Could that data have occurred by random chance? Will the models always hold? Not likely, proof: all the investors who have blown up because of financial crises which they couldn’t predict, all the journalists who were just plain “wrong”. (I believe The Black Swan goes into more detail on this matter, I’ve yet to read it though.)

We can go much deeper than that, all the way back to the origins of the universe. Was it really cause-effect or random chance? That warrants a long post of it’s own. You can draw your own conclusions after reading Fooled By Randomness.

Conclusion/general opinion
Nassim Nicholas Taleb, Lebanese! His style of writing utilises several colourful mini-stories with quasi-fictional (likely real-life characters with obscured names) to deliver his arguments. Though he seemed to lean to the stories where the poor man always wins (by not losing loads of money like the idiot trader) in order to win you to his side. It might seem unfair at times, some people might actually make money in the financial markets because of their skill, but that’s up to you to decide after reading.

In general, a great book. In a few parts, it might be a bit heavy on the finance or statistics for people not interested in the fields, but still worth reading, the message will get through. The title drew me in instantly when I found it, and it was a very vindicating read. You will see several aspects of life in a new light, or at least a slightly different shade of light if you don’t fully agree with the author. Light, fun, recommended! Easy to find in book stores.

5 comments

  1. Thanks for the great review, I was considering reading this book but was worried of the similarities with The Black Swan.
    Maybe in a “rational” way of thinking, by randomness and pure luck, things come to be. I would guess the whole point is that people cannot predict what will happen and that they are never in control, no matter their skills.
    Yet, I tend to think that there’s no such thing as randomness, everything is a cause and effect scenario, even if men will never be able to grasp the reasons or the timeliness of events. I guess I really should read the book.

  2. You know B.F. Skinner was a pioneer in the field of recognizing how random reward should be. His research was amazing to say the least…

    Esko, ListenToMePeople.Wordpress

  3. Ah the “Deterministic” view. Indeed I agree, who knows if randomness truly exists, maybe there is a deterministic basis to everything that we can’t understand yet. I believe humanity was on the path to that knowledge, but then quantum mechanics came along and basically told us there is an inherent uncertainty on the atomic level. But even that could be a setback.
    A very interesting field to explore in my opinion, I want to dive into it sometime.

  4. Pingback: My review of Fooled By Randomness | GN54

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