225 of 244 people found the following review helpful
Essential for understanding the workings of the world,
By A Customer
This review is from: Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life (Hardcover)
Anyone who holds any doubts in regards to the validity of this book must read Edward Chancellor's 'Devil Take the Hindmost,' which provides a history of financial markets from the dawn of the Roman Empire up to now. After reading such a sweeping historical account, one sees the financial markets for exactly what they have always been: one vast bubble machine where people have even invested in, according to Chancellor, a company that refused to explain anything about what it did but simply assured the investors that it had a great idea for making money. Sounds rather similar to some of the dot coms in recent years. Through a compliation of both antecdotes and thoughts, Taleb provides an explanation as to why the markets work in this way, why so many fail to realize this, and how these issues are mirrored in our everyday lives. He addresses many issues that everyone should understand in order to view the world in a realistic manner. Evolution is not a one way road to nirvana but rather the process through which those adapted to the current situation fare better, and they may not be best adopted when things change. When judging the validity of any strategy in business or in life one must consider that the winners write the history books; you can only talk to survivors of war but that certainly doesn't mean that everyone survives it. When deducing anything from viewing a sample you must consider the forces that created that sample: should you consider yourself unintelligent because you're behind your classmates at a top law school? Are a good outcome and a good decision the same thing, and likewise for a bad outcome and a bad decision? And the list goes on.
While Taleb does not fully dive into this issue until later in the book, the primary conjecture of the piece is that human beings are psychologically prone to misinterpret random events. We need to explain things, whether it be in the social sciences, art and literature, or the natural sciences, so we find ways to explain them. Considering the infinite quantities of data at our disposal, no statistician denies that extremely powerful correlations will occur simply out of chance. Certain aspects of an author's life will be almost identical to passages in his or her novels, certains stocks will share perfect correlations, and we are creatures in need of explanation, and whole industries have been created to mine the data and tell us why things occur.
Prior to this book, Taleb had already written 'Dynamic Hedging,' considered by many, including myself, to be one of the best books ever written on exotic and vanilla options. That book is not for anyone who has not spent years studying (or preferably practicing) options, but in 'Fooled by Randomness' he illustrates his ideas in terms that anyone could understand. In 'Dynamic Hedging' he provides more insights into his trading strategies than he would have done had he been solely profit motivated, and likewise, as the boss of a fund that profits from other people's misconceptions of probability, he cannot have any reason to try to increase people's awareness of how the world really works other than a genuine desire to play the role of the teacher. Many have attacked the book as arrogant, but it must be remembered that anyone who goes against the common ways of thinking is essentially suggesting that he or she understands things better than do most people and therefore cannot help but come off as arrogant. Several times in the book Taleb specifically states that he falls victim to the tendencies that he condemns, and that the main difference that he sees between himself and others is that he is at least aware of it.
Considering the fact that Taleb blatantly argues that many who consider themselves the rulers of the universe were in fact a group of lucky fools, it is inevitable that many will come away from it with a sense of anger and a refusal to believe it. I am therefore almost surprised that the book has not drawn harsher reviews than it has, for Taleb was certainly not seeking to make friends through the publication of it. I suspect that those who rate the book as poor fall into two general categories: those who were troubled by the thought that a considerable portion of their success may have resulted from luck, and those who are attached to their current views on the workings of the markets and are hostile to any new views on them. These two categories naturally overlap quite often. An important thing to remember is that even if you work very hard, not only are the outcomes of your projects the result, to varying extents, of chance, but chance also played a role in getting you to the position where you can work hard and actaully see it pay off. Considering the complexity of the world we live in, and the infinite forces that push and pull on our lives, this book is critical to anyone who desires an objective veiw of how things come to be...
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Showing 1-7 of 7 posts in this discussion
Initial post: Apr 19, 2009 10:15:05 PM PDT
In your last paragraph you mention how chance can make a role in your success. This reminds me of Malcolm Gladwell's book, Outliers, where he makes a case for how something as simple as being born at the right time can have a large outcome on success. That is something I can't personally control.
In reply to an earlier post on Dec 3, 2009 10:56:52 AM PST
Last edited by the author on Dec 3, 2009 11:03:06 AM PST
In reply to an earlier post on May 22, 2010 11:10:48 AM PDT
In the Middle says:
Posted on Mar 11, 2013 8:09:05 AM PDT
Doug J. says:
" I suspect that those who rate the book as poor fall into two general categories: those who were troubled by the thought that a considerable portion of their success may have resulted from luck, and those who are attached to their current views on the workings of the markets and are hostile to any new views on them."
I dislike this book but I am not in either of those two categories. There is a third category into which I fall: people who are experts on: 1) that uncertainty and luck play a large role in the outcomes of human activities (much more than most people think); 2) that a correlation between two types of events does not necessarily mean that one causes the other; 3) that statistics and the rare random event are poorly understood by almost everyone; 4) that small differences in performance and ability can cause very large differences in the rewards or difficulties that people obtain in life; and 5) that humans are very irrational beings and are not very good at thinking probabilistically and understanding the probabilities of even everyday events rationally.
There are books and articles (and web sites) on those five topics that are superior for either a lay-person interested in gaining a general perspective on those topics, or someone wanting a deep professional expertise on those topics.
The former group of people--unless they are focused primarily on financial trading--will have to invest time and money and effort extracting the perspective from the bulk of the book, when instead they should be reading the material elsewhere specifically on those five topics. The latter group of people might include a few seeking exposure to how their expertise on those five topics could apply to financial trading.
Posted on Nov 9, 2014 3:39:27 PM PST
F. Schaaf says:
I think you omit another large category of people who would resist these ideas - those who prefer top-down solutions to problems. (Analogous to the second group, but generalized beyond market behavior.)
E. Douglas Jensen, I would love a sampling of some of your favorite links or titles.
In reply to an earlier post on Nov 9, 2014 6:09:42 PM PST
Doug J. says:
I'll be happy to provide some of my favorite semi-relevant book titles. The obvious ones are by Kanneman and Tversky, especially their seminal book "Judgment under Uncertainty: Heuristics and Biases." We know Taleb would approve of that LOL. But I also like Ariley's "Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions," which I suspect Taleb would not approve of. It has an "analytical" viewpoint of probability theories and other decision-making formalisms, which in his books Taleb says he is not interested in (at least in those books--obviously he has a mental facility for analytical/mathematical reasoning.) I like Klir's "Uncertainty Based Information" and especially his "Uncertainty and Information: Foundations of Generalized Information Theory." The latter is Klir's magnum opus manifesto before retirement (I think of it as akin to Bach's "St. Matthew Passion" and "B Minor Mass" shortly before he died). A great deal of work has taken place in the GIT field since Klir, many conference papers for example, and a number of books. From my response, you may ascertain that I am a theoretically-oriented scientist/engineer in a specialized subset of the decision-making field (military combat); I know nothing whatsoever about the Wall St. world.
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