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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Incerto Book 1) by [Nassim Nicholas Taleb]

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Nassim Nicholas Taleb

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Incerto Book 1) Kindle Edition

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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, Skin in the Game, and The Bed of Procrustes.

Fooled by Randomness is the word-of-mouth sensation that will change the way you think about business and the world. Nassim Nicholas Taleb–veteran trader, renowned risk expert, polymathic scholar, erudite raconteur, and New York Times bestselling author of The Black Swan–has written a modern classic that turns on its head what we believe about luck and skill.

This book is about luck–or more precisely, about how we perceive and deal with luck in life and business. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill–the world of trading–Fooled by Randomness provides captivating insight into one of the least understood factors in all our lives. Writing in an entertaining narrative style, the author tackles major intellectual issues related to the underestimation of the influence of happenstance on our lives.

The book is populated with an array of characters, some of whom have grasped, in their own way, the significance of chance: the baseball legend Yogi Berra; the philosopher of knowledge Karl Popper; the ancient world’s wisest man, Solon; the modern financier George Soros; and the Greek voyager Odysseus. We also meet the fictional Nero, who seems to understand the role of randomness in his professional life but falls victim to his own superstitious foolishness.

However, the most recognizable character of all remains unnamed–the lucky fool who happens to be in the right place at the right time–he embodies the “survival of the least fit.” Such individuals attract devoted followers who believe in their guru’s insights and methods. But no one can replicate what is obtained by chance.

Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover nonexistent messages in random events? It may be impossible to guard ourselves against the vagaries of the goddess Fortuna, but after reading Fooled by Randomness we can be a little better prepared.

Named by Fortune One of the Smartest Books of All Time

A Financial Times Best Business Book of the Year

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Popular Highlights in this book

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A mistake is not something to be determined after the fact, but in the light of the information until that point.
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Mild success can be explainable by skills and labor. Wild success is attributable to variance.
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Heroes are heroes because they are heroic in behavior, not because they won or lost.
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Editorial Reviews

Review

"[Taleb is] Wall Street’s principal dissident. . . . [Fooled By Randomness] is to conventional Wall Street wisdom approximately what Martin Luther’s ninety-nine theses were to the Catholic Church.”
–Malcolm Gladwell, The New Yorker

“Fascinating . . . Taleb will grab you.”
–Peter L. Bernstein, author of Against the Gods: The Remarkable Story of Risk

“Recalls the best of scientist/essayists like Richard Dawkins . . . and Stephen Jay Gould.”
–Michael Schrage, author of Serious Play

“We need a book like this . . . fun to read, refreshingly independent-minded.”
–Robert J. Shiller, author of Irrational Exuberance

From Publishers Weekly

In this look at financial luck, hedge fund manager Taleb (Dynamic Hedging) addresses the apparently irrational movement of money markets around the world. Using his own investing experience and examples of others' successes and disappointments, he discusses theories like Monte Carlo math (easy; considered cheating by purists) and the concept of Russian roulette. Taleb tells interesting, well-wrought stories about individual behavior: "While Nero has succeeded beyond his wildest dreams, both personally and intellectually, he is starting to consider himself as having missed a chance somewhere." While serious investors and mathematics enthusiasts will be intrigued, readers looking for practical investment strategies will be disappointed by this rambling intellectual discourse. Tables. 40,000-copy first printing; $150,000 marketing budget.

--This text refers to an out of print or unavailable edition of this title.

Amazon.com Review

If the prescriptions for getting rich that are outlined in books such as The Millionaire Next Door and Rich Dad Poor Dad are successful enough to make the books bestsellers, then one must ask, Why aren't there more millionaires? In Fooled by Randomness, Nassim Nicholas Taleb, a professional trader and mathematics professor, examines what randomness means in business and in life and why human beings are so prone to mistake dumb luck for consummate skill. This eccentric and highly personal exploration of the nature of randomness meanders from the court of Croesus and trading rooms in New York and London to Russian roulette, Monte Carlo engines, and the philosophy of Karl Popper. Part of what makes this book so good is Taleb's ability to make seemingly arcane mathematical concepts (at least to this reviewer) entirely relevant in evaluating and understanding everything from the stock market to the success of those millionaires cited in the aforementioned bestsellers. Here's an articulate, wise, and humorous meditation on the nature of success and failure that anyone who wants a little more of the former would do well to consider. Highly recommended. --Harry C. Edwards --This text refers to an out of print or unavailable edition of this title.

About the Author

Nassim Nicholas Taleb is an essayist principally concerned with the problems of uncertainty and knowledge. Taleb�s interests lie at the intersection of philosophy, mathematics, finance, literature, and cognitive science but he has stayed extremely close to the ground thanks to an uninterrupted two-decade career as a mathematical trader. Specializing in the risks of unpredicted rare events (�black swans�), he held senior trading positions in New York and London before founding Empirica LLC, a trading firm and risk research laboratory. Taleb is a fellow at the Courant Institute of Mathematical Sciences of New York University where he has been teaching a class on the failure of models since 1999. His degrees include an MBA from the Wharton School and a Ph.D. from the University of Paris Dauphine. The author�s ideas on skeptical empiricism have been covered by hundreds of articles around the world. Since childhood, Taleb has been obsessed with the defects of his own thinking. In addition to his scientific and literary interests, Taleb enjoys cafe lounging and museum hopping. --This text refers to an out of print or unavailable edition of this title.

From Booklist

Taleb is a "quant," or mathematical trader, and an expert on financial derivatives who has made a name for himself in investing circles as a voluble critic of popular theories and conventional wisdom. He is also the author of Dynamic Hedging: Managing Vanilla and Exotic Options (1996). Taleb is fluent in seven languages and a reader of classical literature, an avocation that readily manifests itself in this meandering discourse on the roles of probability, luck, and risk in the markets and in life. Taleb examines how and why the attempt to determine cause and effect is continually hampered by random occurrences and our emotional responses to them. He freely shares his ideas and opinions, finding insights in the funeral of Jackie Onassis, B. F. Skinner's experiments on pigeons, Solon's warning, Karl Popper's work, George Soros, Darwinism, the O. J. Simpson trial, Pascal's wager, the collapse of Long Term Capital Management, the trading floor of the Chicago Mercantile Exchange, birthdays, taxicabs, and especially the works of ancient Greek philosophers. David Rouse
Copyright © American Library Association. All rights reserved --This text refers to an out of print or unavailable edition of this title.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1

Croesus, King of Lydia, was considered the richest man of his time. To this day Romance languages use the expression “rich as Croesus” to describe a person of excessive wealth. He was said to be visited by Solon, the Greek legislator known for his dignity, reserve, upright morals, humility, frugality, wisdom, intelligence, and courage. Solon did not display the smallest surprise at the wealth and splendor surrounding his host, nor the tiniest admiration for their owner. Croesus was so irked by the manifest lack of impression on the part of this illustrious visitor that he attempted to extract from him some acknowledgment. He asked him if he had known a happier man than him. Solon cited the life of a man who led a noble existence and died while in battle. Prodded for more, he gave similar examples of heroic but terminated lives, until Croesus, irate, asked him point-blank if he was not to be considered the happiest man of all. Solon answered: “The observation of the numerous misfortunes that attend all conditions forbids us to grow insolent upon our present enjoyments, or to admire a man’s happiness that may yet, in course of time, suffer change. For the uncertain future has yet to come, with all variety of future; and him only to whom the divinity has [guaranteed] continued happiness until the end we may call happy.”

The modern equivalent has been no less eloquently voiced by the baseball coach Yogi Berra, who seems to have translated Solon’s outburst from the pure Attic Greek into no less pure Brooklyn English with “it ain’t over until it’s over,” or, in a less dignified manner, with “it ain’t over until the fat lady sings.” In addition, aside from his use of the vernacular, the Yogi Berra quote presents an advantage of being true, while the meeting between Croesus and Solon was one of those historical facts that benefited from the imagination of the chroniclers, as it was chronologically impossible for the two men to have been in the same location.

Part I is concerned with the degree to which a situation may yet, in the course of time, suffer change. For we can be tricked by situations involving mostly the activities of the goddess Fortuna—Jupiter’s firstborn daughter. Solon was wise enough to get the following point; that which came with the help of luck could be taken away by luck (and often rapidly and unexpectedly at that). The flipside, which deserves to be considered as well (in fact it is even more of our concern), is that things that come with little help from luck are more resistant to randomness. Solon also had the intuition of a problem that has obsessed science for the past three centuries. It is called the problem of induction. I call it in this book the black swan or the rare event. Solon even understood another linked problem, which I call the skewness issue; it does not matter how frequently something succeeds if failure is too costly to bear.

Yet the story of Croesus has another twist. Having lost a battle to the redoubtable Persian king Cyrus, he was about to be burned alive when he called Solon’s name and shouted (something like) “Solon, you were right” (again this is legend). Cyrus asked about the nature of such unusual invocations, and he told him about Solon’s warning. This impressed Cyrus so much that he decided to spare Croesus’ life, as he reflected on the possibilities as far as his own fate was concerned. People were thoughtful at that time.

If You’re So Rich, Why Aren’t You So Smart?

An illustration of the effect of randomness on social pecking order and jealousy, through two characters of opposite attitudes. On the concealed rare event. How things in modern life may change rather rapidly, except, perhaps, in dentistry.

Nero Tulip

Hit by Lightning

Nero Tulip became obsessed with trading after witnessing a strange scene one spring day as he was visiting the Chicago Mercantile Exchange. A red convertible Porsche, driven at several times the city speed limit, abruptly stopped in front of the entrance, its tires emitting the sound of pigs being slaughtered. A visibly demented athletic man in his thirties, his face flushed red, emerged and ran up the steps as if he were chased by a tiger. He left the car double-parked, its engine running, provoking an angry fanfare of horns. After a long minute, a bored young man clad in a yellow jacket (yellow was the color reserved for clerks) came down the steps, visibly untroubled by the traffic commotion. He drove the car into the underground parking garage—perfunctorily, as if it were his daily chore.

That day Nero Tulip was hit with what the French call a coup de foudre, a sudden intense (and obsessive) infatuation that strikes like lightning. “This is for me!” he screamed enthusiastically—he could not help comparing the life of a trader to the alternative lives that could present themselves to him. Academia conjured up the image of a silent university office with rude secretaries; business, the image of a quiet office staffed with slow thinkers and semislow thinkers who express themselves in full sentences.

Temporary Sanity

Unlike a coup de foudre, the infatuation triggered by the Chicago scene has not left him more than a decade and a half after the incident. For Nero swears that no other lawful profession in our times could be as devoid of boredom as that of the trader. Furthermore, although he has not yet practiced the profession of high-sea piracy, he is now convinced that even that occupation would present more dull moments than that of the trader.

Nero could best be described as someone who randomly (and abruptly) swings between the deportment and speech manners of a church historian and the verbally abusive intensity of a Chicago pit trader. He can commit hundreds of millions of dollars in a transaction without a blink or a shadow of a second thought, yet agonize between two appetizers on the menu, changing his mind back and forth and wearing out the most patient of waiters.

Nero holds an undergraduate degree in ancient literature and mathematics from Cambridge University. He enrolled in a Ph.D. program in statistics at the University of Chicago but, after completing the prerequisite coursework, as well as the bulk of his doctoral research, he switched to the philosophy department. He called the switch “a moment of temporary sanity,” adding to the consternation of his thesis director, who warned him against philosophers and predicted his return back to the fold. He finished writing his thesis in philosophy. But not the Derrida continental style of incomprehensible philosophy (that is, incomprehensible to anyone outside of their ranks, like myself). It was quite the opposite; his thesis was on the methodology of statistical inference in its application to the social sciences. In fact, his thesis was indistinguishable from a thesis in mathematical statistics—it was just a bit more thoughtful (and twice as long).

It is often said that philosophy cannot feed its man—but that was not the reason Nero left. He left because philosophy cannot entertain its man. At first, it started looking futile; he recalled his statistics thesis director’s warnings. Then, suddenly, it started to look like work. As he became tired of writing papers on some arcane details of his earlier papers, he gave up the academy. The academic debates bored him to tears, particularly when minute points (invisible to the noninitiated) were at stake. Action was what Nero required. The problem, however, was that he selected the academy in the first place in order to kill what he detected was the flatness and tempered submission of employment life.

After witnessing the scene of the trader chased by a tiger, Nero found a trainee spot on the Chicago Mercantile Exchange, the large exchange where traders transact by shouting and gesticulating frenetically. There he worked for a prestigious (but eccentric) local, who trained him in the Chicago style, in return for Nero solving his mathematical equations. The energy in the air proved motivating to Nero. He rapidly graduated to the rank of self-employed trader. Then, when he got tired of standing on his feet in the crowd, and straining his vocal cords, he decided to seek employment “upstairs,” that is, trading from a desk. He moved to the New York area and took a position with an investment house.

Nero specialized in quantitative financial products, in which he had an early moment of glory, became famous and in demand. Many investment houses in New York and London flashed huge guaranteed bonuses at him. Nero spent a couple of years shuttling between the two cities, attending important “meetings” and wearing expensive suits. But soon Nero went into hiding; he rapidly pulled back to anonymity—the Wall Street stardom track did not quite fit his temperament. To stay a “hot trader” requires some organizational ambitions and a power hunger that he feels lucky not to possess. He was only in it for the fun—and his idea of fun does not include administrative and managerial work. He is susceptible to conference room boredom and is incapable of talking to businessmen, particularly the run-of-the-mill variety. Nero is allergic to the vocabulary of business talk, not just on plain aesthetic grounds. Phrases like “game plan,” “bottom line,” “how to get there from here,” “we provide our clients with solutions,” “our mission,” and other hackneyed expressions that dominate meetings lack both the precision and the coloration that he prefers to hear. Whether people populate silence with hollow sentences, or if such meetings present any true merit, he does not know; at any rate he did not want to be part of it. Indeed Nero’s extensive social life includes almost no businesspeople. But unlike me (I can be extremely humiliating when someone rubs me the wrong way with inelegant pompousness), Nero handles himself with gentle aloofness in these circumstances.

So, Nero switched careers to what is called proprietary trading. Traders are set up as independent entities, internal funds with their own allocation of capital. They are left alone to do as they please, provided of course that their results satisfy the executives. The name proprietary comes from the fact that they trade the company’s own capital. At the end of the year they receive between 7% and 12% of the profits generated. The proprietary trader has all the benefits of self-employment, and none of the burdens of running the mundane details of his own business. He can work any hours he likes, travel at a whim, and engage in all manner of personal pursuits. It is paradise for an intellectual like Nero who dislikes manual work and values unscheduled meditation. He has been doing that for the past ten years, in the employment of two different trading firms.

Modus Operandi

A word on Nero’s methods. He is as conservative a trader as one can be in such a business. In the past he has had good years and less than good years—but virtually no truly “bad” years. Over these years he has slowly built for himself a stable nest egg, thanks to an income ranging between $300,000 and (at the peak) $2.5 million. On average, he manages to accumulate $500,000 a year in after-tax money (from an average income of about $1 million); this goes straight into his savings account. In 1993, he had a bad year and was made to feel uncomfortable in his company. Other traders made out much better, so the capital at his disposal was severely reduced, and he was made to feel undesirable at the institution. He then went to get an identical job, down to an identically designed workspace, but in a different firm that was friendlier. In the fall of 1994 the traders who had been competing for the great performance award blew up in unison during the worldwide bond market crash that resulted from the random tightening by the Federal Reserve Bank of the United States. They are all currently out of the market, performing a variety of tasks. This business has a high mortality rate.

Why isn’t Nero more affluent? Because of his trading style—or perhaps his personality. His risk aversion is extreme. Nero’s objective is not to maximize his profits, so much as it is to avoid having this entertaining machine called trading taken away from him. Blowing up would mean returning to the tedium of the university or the nontrading life. Every time his risks increase, he conjures up the image of the quiet hallway at the university, the long mornings at his desk spent in revising a paper, kept awake by bad coffee. No, he does not want to have to face the solemn university library where he was bored to tears. “I am shooting for longevity,” he is wont to say.

Nero has seen many traders blow up, and does not want to get into that situation. Blow up in the lingo has a precise meaning; it does not just mean to lose money; it means to lose more money than one ever expected, to the point of being thrown out of the business (the equivalent of a doctor losing his license to practice or a lawyer being disbarred). Nero rapidly exits trades after a predetermined loss. He never sells “naked options” (a strategy that would leave him exposed to large possible losses). He never puts himself in a situation where he can lose more than, say, $1 million—regardless of the probability of such an event. That amount has always been variable; it depends on his accumulated profits for the year. This risk aversion prevented him from making as much money as the other traders on Wall Street who are often called “Masters of the Universe.” The firms he has worked for generally allocate more money to traders with a different style from Nero, like John, whom we will encounter soon.

Nero’s temperament is such that he does not mind losing small change. “I love taking small losses,” he says. “I just need my winners to be large.” In no circumstances does he want to be exposed to those rare events, like panics and sudden crashes, that wipe a trader out in a flash. To the contrary, he wants to benefit from them. When people ask him why he does not hold on to losers, he invariably answers that he was trained by “the most chicken of them all,” the Chicago trader Stevo who taught him the business. This is not true; the real reason is his training in probability and his innate skepticism.

From the Trade Paperback edition. --This text refers to an alternate kindle_edition edition.

Product details

ASIN ‏ : ‎ B001FA0W5W
Publisher ‏ : ‎ Random House; Updated edition (October 6, 2008)
Publication date ‏ : ‎ October 6, 2008
Language ‏ : ‎ English
File size ‏ : ‎ 1845 KB
Text-to-Speech ‏ : ‎ Enabled
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Enhanced typesetting ‏ : ‎ Enabled
X-Ray ‏ : ‎ Enabled
Word Wise ‏ : ‎ Enabled
Sticky notes ‏ : ‎ On Kindle Scribe
Print length ‏ : ‎ 358 pages

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Nassim Nicholas Taleb

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Nassim Nicholas Taleb spent more than two decades as a risk taker before becoming a full-time essayist and scholar focusing on practical, philosophical, and mathematical problems with chance, luck, and probability. His focus in on how different systems handle disorder.

He now spends most of his time in the intense seclusion of his study, or as a flâneur meditating in cafés. In addition to his life as a trader he spent several years as an academic researcher (12 years as Distinguished Professor at New York University's School of Engineering, Dean's Professor at U. Mass Amherst).

He is the author of the Incerto (latin for uncertainty), accessible in any order (Skin in the Game, Antifragile, The Black Swan, The Bed of Procrustes, and Fooled by Randomness) plus a technical version, The Technical Incerto (Statistical Consequences of Fat Tails). Taleb has also published close to 55 academic and scholarly papers as a backup, technical footnotes to the Incerto in topics ranging from Statistical Physics and Quantitative Finance to Genetics and International affairs. The Incerto has more than 200 translations in 41 languages.

Taleb believes that prizes, honorary degrees, awards, and ceremonialism debase knowledge by turning it into a spectator sport.

""Imagine someone with the erudition of Pico de la Mirandola, the skepticism of Montaigne, solid mathematical training, a restless globetrotter, polyglot, enjoyer of fine wines, specialist of financial derivatives, irrepressible reader, and irascible to the point of readily slapping a disciple." La Tribune (Paris)

A giant of Mediterranean thought ... Now the hottest thinker in the world", London Times

"The most prophetic voice of all" GQ

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Greg Linster

A Book Worth Reading More Than Twice

Reviewed in the United States 🇺🇸 on August 8, 2013

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Using his trademark aphoristic bent, Friedrich Nietzsche wrote: "Arrogance in persons of merit affronts us more 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 more 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 more 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 more 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 more 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 more than twice. When you love a writer, you want to hear his opinion on just about everything.

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A must read for investors, systems thinkers, and ponderers of complex systems and processes.

Reviewed in the United States 🇺🇸 on June 21, 2023

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It's not intuitive that life is laced with as much luck as Taleb claims, especially not while we're surrounded by so many experts providing an endless flow of narratives. Then again, if you took this book, held it up to his current expert musings on Twitter, you'd find yourself looking the other way at his behavior.

His journey through the work of Kahneman and Tversky was great. We are hardwired to be biased in so many ways when it comes to data and its interpretation. We're not made for a world with so much randomness. People do suck at probability. You have to go out of your way to activate system 2 to truly understand something. My favorite bias, if that's something you can have a favorite of, was the survivorship bias. It had never occurred to me how much of the story we're missing simply by acknowledging the small sample of winners and survivors at the expense of the set that isn't in the winner's circle.

I like to use the term mind blowing when I read a book I really enjoy, but this book is more mind melting, in that you end up questioning your own frameworks and paradigms. As a parent, after reading this book it's easy to view your kids' shenanigans as 'noise' and not necessarily as the 'true signal.' In fact, it's probably healthy to do that.

I would say this translates to the work place as well. How often do coworkers annoy us? Well how much of that is noise surrounding a true signal? It's too easy to base so much on the noise while not actually searching for the signal.

How much of human events are noise? The news? (Most of it really). But if you can discern the noise from the signal then odds are you're more perceptive than the average bear, or you're just lucky.

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Rhushikesh Bhadkamkar

Precisely very random and thought provoking

Reviewed in the United States 🇺🇸 on November 21, 2012

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This is one the first books I ever read on markets and trading. However compared to its reviews it turned out to something completely different. It definitely was not a kind of a book where you can just read and move on but a kind that actually makes you stop and think. I always had the impression that books about the market or the economy come with a baggage of understanding the material and concepts beforehand. Fooled by Randomness threw me back by the way Nassim the author, portrayed the various facets in which randomness and probability not only rule markets or trading but everyone's life in general. It was fascinating to see that such a world even exists and that people who are driven by profit do not always take a straightforward path.
Overall the book was interesting for a novice reader but definitely not an easy to follow book. There were many parts of the book where I had to stop and read twice or thrice to understand what the author is trying to say. It definitely shows you a different mindset of the Type A personality investment bankers and traders.
The book walks through various phases of how randomness and probability affect people from all walks of life. It is well divided into three major parts, each explaining different angles in which people view probability and randomness in their lives and how they deal with it on an individual level. The author explains well how perception and biases are responsible for people making wrong decisions. He talks about the fact that even though we cannot completely ignore emotions, we cannot as well completely remove probability and randomness while evaluating decisions and risks. The author also explains about the Monte Carlos simulators and how they should always be used to predict outcomes in the future rather than just relying on data from the past. The author also has strong views about denigrate history suggesting that people feel that things that happen to others might not happen to them. Nassim has given a lot of examples to show the reader the various angles in which randomness and probability is perceived, used and interpreted by people. The author also draws light upon the fact that too much information might end up doing more harm than good as it blurs your decision and your ability to choose the right information. Nassim also strongly emphasizes on the fact that any individual should never get completely loyal to his position as it hinders him from looking at different points of views. This in turns affects his decision making and ability to adapt to the changes that come with the position. The author has given examples of people from his life, famous people throughout history as well as people from various field of work to prove his point in several occasions. The author finally suggests that it is inevitable to be affected by randomness as he himself has been affected by it. However whatever the effects of randomness in anyone's life, they never should blame anyone or get angry but just learn to deal with and change is always inevitable.
The book has been written in a very personal format where it feels as if the author is trying to convey a message through a personal talk. Talking about experiences in his life and sharing his emotions definitely helps build that connection with the author. The author's style seems very straight and blunt as well. It feels like he has no qualms about how he has experienced life or what he has thought about some people who he has met in life. This is clearly seen in way he expresses feelings about some of his neighbors, coworkers or even people he has heard about. It gives a sort of raw understanding into the mind of the author. In doing so he has been able to sort of organize his book in to the various aspects of randomness, its effects and biases that come with it and finally how several people deal with it. This sort of structure helps in understanding the complex message that the author is trying to convey.
There are quite a few quotes that got me thinking, some of which are: "Mild success can be explainable by skills and labor. Wild success is attributable to variance.", "Heroes are heroes because they are heroic in behavior, not because they won or lost.", "A mistake is not something to be determined after the fact, but in the light of the information until that point.", "The only article Lady Fortuna has no control over is your behavior.". However my most favorite line from the book is "No amount of observations of white swans can allow the inference that all swans are white, but the observation of a single black swan is sufficient to refute that conclusion." I love it because it made me think and realize that this applies to so many things in life. Your reputation that you build upon for so many years can all come crashing down with a major mistake. Nassim explains this with an example of a successful banker who earned millions for a bank however a single mistake that cost him millions got him fired and forgotten of the things he had done in the past.
After reading through the entire book you have a sense of confusion mainly due to the fact that it does stay close to its name that there is a lot of talk about randomness that exists in the world and the market. However Nassims ability to convince the author is promising. He himself believes that he was fooled by randomness and consciously tries to make certain decision that help him in making the sound decision.
Overall this book has great things to offer from head scratching content to knowledge to even humor at times and is definitely worth a read. It helped me step out of my comfort reading zone and challenge me in my thoughts and opinions that I had about various aspects in life.

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Client d'Amazon

Seemingly easy to read, don’t get fooled

Reviewed in France 🇫🇷 on July 9, 2020

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There is great value in reading NN Taleb, but it is not “face value”. If you expect insights which you can copy paste into your life to become a better person, better trader or whatever ... You will be disappointed.

Fooled by Randomness is an invitation to reason, to think beyond the appearances, it contains various anecdotes from the life of NN Taleb, as well as hitorical ones. These are meant to trigger thought on the concepts which are laid in the book, and make you ponder on how randomness affects your life and the ones surrounding you.

It is seemingly easy to read, but if you want to get the real value out of it you will need to pause, dig and take the extra mile of thought. NN Taleb points to the source, but it is up to you to take the additional steps to drink from it.

One person found this helpful

Manguart

Inteligente

Reviewed in Mexico 🇲🇽 on August 30, 2017

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Sin duda, es un libro inteligente. Al finalizarlo siempre te preguntaras primero si tus juicios son debido a aleatoriedad del entorno o si realmente tienen sustento empírico.

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Shantanu

Thankyou Mr. Taleb

Reviewed in Singapore 🇸🇬 on July 9, 2020

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I was searching for a book which can teach me about role of luck in life. In my personal experience I could see how stupid folks are going up the ladder and I am being fooled by luck for not giving me the desired benefits which i deserved. Well this book explains it all.
I love the philosophy placed inside this book and it is amazing experience which Nicholas has presented throughout the book.
A must read !
Thankyou :)

Phil

A timeless classic on the role of luck

Reviewed in Australia 🇦🇺 on October 26, 2018

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Fooled by Randomness Review

This is my third Taleb book and I actually believe it's his best work. Black Swan is close behind and was my first read of his. Earlier in the year picked up Skin in The Game, which I don’t recommend unless you’ve read his other books because you will think him a bit too much.

Fooled by Randomness is Taleb before he became a little bit too cocky with himself. You can see that he still possesses his large ego and humour in this one but hasn't gone overboard with his own success like we find him in his latest book, Skin in the game.

Don’t ask me why I started with Black Swan rather than this, I was told by many that Black Swan was better than this but I disagree now. I am thankful to have listened to a podcast recently from Howard Marks discussing how this is one of his favourites and I can see why.

Onto the book itself - FBR is as I said in the headline to be considered a 'classic'. Why? It gets you to think about how random the world can truly be and how the events we reflect on now was just one of many paths that occurred. It is one of those books that I think everyone should revisit every year or two when they have the time as the concepts are so important.

The book was written in 2001 and is about luck or “randomness”. Since then, there have been a few books since like Maubussin’s ‘Untangling Skill and Luck’ but I feel this is the better one of the genre and what rightfully kicked off Taleb’s Big Bang of success in the book world.

Taleb uses examples throughout to discuss randomness and how we find it irresistible to look at events, companies, people and ignore the ‘survivorship bias’. In a nutshell, the survivorship bias implies that the highest performing realization will be the most visible. Why? Because the losers do not show up.

It got me thinking about the winner take all nature of society and business but how some of this is just down to chance. We never hear about the losers, only the winners. While I don’t agree with his comment about Warren Buffet being lucky (quote “I am not saying that Warren Buffett is not skilled; only that a large population of random investors will almost necessarily produce someone with his track records just by luck”) the book will give you pause to think about what else that we see today is thanks to chance and randomness and then how can you in your own life increase your own odds of success.

Despite confessing in the introduction that this is not a "finance" book, it is laced with finance and trading examples regularly throughout. Taleb can’t help himself as this is his domain and previous career as a trader. I am in finance myself and think his example about traders having small wins accumulated here and there eventually leading to a blow up is very original. Black Swan largely covers this however. One of his better examples is regarding two traders (Carlos and John) illustrate how during the 80’s and 90’s trading desks were filled with people who had no concept of randomness and luck and then despite making $60m for a bank in their career, can often lose multiples of this on the way out without any repercussions (Btw, this is where the idea of Skin in the Game comes at many years later).

Nevertheless, when this random event happens, the excuse given by these traders who do not understand randomness is along the lines of “it was a black swan, how could anyone know that [insert asset class] would do that”. We learn that nobody accepts randomness when it comes to their own success, only when they fail.

One of my favourite quotes and perhaps a good summary of the concept of the book is “"We tend to think that traders were successful because they are good. Perhaps we have turned the causality on its head; we consider them good just because they make money. One can make money in the financial markets totally out of randomness."

Without droning on too long, this is an entertaining book. It is very funny at times and I suggest watching Taleb on Youtube before or during the book so you can see how he is in person to appreciate the book even. more. To me, it is one of those rare books that I think will alter how you view the successes of events, people and companies. Their success was not necessarily pre-ordained. What we see was just one of many possible outcomes that could have occurred. This is why randomness and luck is such a fascinating topic to me. While there are applicable lessons in other domains such as business and I would recommend this book to people outside of finance, you will enjoy it so much more if you understand trading and finance.

Furthermore, if you’ve heard people telling you to read Mr Taleb, then don’t make my mistake and start with this one rather his more recent books. You will get a sense of why Taleb is as revered as he is.

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Achraf T.

One of my best books ever

Reviewed in France 🇫🇷 on October 3, 2013

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La littérature de business et de management est jonchée de livres sur la réussite, comment réussir sa vie bla bla bla...Il suffit que quelqu'un ait une expérience fructueuse pour qu'il se permet de donner des leçons à autrui et les gens sont en général friands de ce genre de littérature. Mais qu'en est-il du facteur chance? Où sont ces gents qui ont fait la même chose mais qui n'ont pas réussi? l'auteur parle du "survivorship bias". Lisez ce livre pour en savoir plus

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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Incerto Book 1) Kindle Edition

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