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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Incerto) Paperback – August 23, 2005
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–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
About the Author
Taleb’s books have been published in forty-one languages.
- ASIN : 0812975219
- Publisher : Random House Trade Paperbacks; 2nd ed. edition (August 23, 2005)
- Language : English
- Paperback : 368 pages
- ISBN-10 : 158799190X
- ISBN-13 : 978-1587991905
- Item Weight : 9.7 ounces
- Dimensions : 5.18 x 0.78 x 7.95 inches
- Best Sellers Rank: #9,239 in Books (See Top 100 in Books)
- Customer Reviews:
"A timely novel highlighting the worth and delicate nature of Nature itself." -Delia Owens Learn more
Top reviews from the United States
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To wit: Taleb posits that Einstein proved Newton wrong. Not true. Einstein showed that Newtonian mechanics failed at the extremes - extremely large (cosmologic) and extremely small (atomic distances). Further, he posits that the poor schlep scientist's odds of success continue to increase as he does more mouse experiments. Untrue if the hypothesis under which the scientist is proceeding is ultimately incorrect. And finally, the author accepts global warming as a given and castigates science for not having recognized the truth of it from random weather events. Taleb, stick your knitting. It's one thing to be ignorant, but another to open one's mouth and remove all doubt.
Financial theories and economic paradigms are not a matter of truth about reality, they are fictional narratives we tell ourselves about reality; the narratives are about how we navigate our experience of existence. However, it is from this basis that we proceed as if we understand reality and control events. This result is to be fooled by randomness. Economics is just a created construct to help us navigate the experience of a random existence and retrospectively explain random events. In a way, economic theory is a narrow band response to the conditions of existence, not a description of the underlying reality of existence. Such theories are not much different than religious beliefs, both are placebos; attempts to impose order and determinate explanations upon the indeterminate randomness of existence. Many of our explanatory theories employed to guide our experience of existence reduces to a cacophony of concatenated asymmetrical subjective approximations. We are victimized by Fate, tyrannized by Evolution and cursed by Genetics. Within the pages we read many examples of those subjected to the tyranny of goals and undone by the treachery of plans. Is it not Fate for whom of course we each wait? Yes, for Fortuna to spin once again her great wheel; it is likely she who invented the wheel.
The author rightly points out the silliness and fallaciousness of pseudo-scientific thinking and warns the reader against falling for it. He then proceeds to engage in his own form of pseudo-philosophical thinking with an ad hominem attack on Hegel. I wish that he would have chosen not to mar his otherwise interesting book with a low brow diatribe. Taleb understands Hegel as a “The Father of All Pseudo-thinkers”. Clearly, Taleb has not read Hegel in anything more than the most superficial manner. He fails to see the master dialectician and instead employs the advanced philosophical methodologies of taking quotes out of context, engaging in an overly simplistic reductions and from here, drawing false inferences. These are many of the fallacies that he warns the reader to avoid. The flaw in Taleb’s analysis is to consider a single statement, or perhaps even several individual statements by Hegel out of context and fail to consider Hegel as presenting a comprehensive system of thought as well as a challenge to comprehensive systems of thought, with its own unique internal consistency, the sum of which is greater than a single portion considered out of context and subjected to the parlor tricks conjured up with the misapplication of Mote Carlo simulations. In seems that Taleb is being fooled by his own noise. Maybe the title of the book should have been ‘Noise Pollution’.
Amusing, but Not as the Author Intended
Amusingly, Taleb anticipates and preemptively attacks reviews of this book appearing on Amazon, before they are posted by saying that such views say more about the reviewer than the book. That is, the reviews are preemptively dismissed as being self-reflexive This is also a borderline case of the ad hominem fallacy. Add to this the taint of ‘poising the well’ of reviews with his all too easy preemptive dismissal and as well ‘painting with the broad brush’ and putting all reviews in the same category, generating his own type of category error. The gentleman doth protest too much, methinks – how amusing.
I've read all four of Taleb's books and Fooled By Randomness still stands out as my favorite. Although Black Swan is still the most popular, and most controversial, Fooled in many ways is the most practical, as it's the most general and therefore most widely applicable. Everyone should deeply understand the survivorship and hindsight biases, as well as the difference between conditional and unconditional probability.
That being said, it's often hard to determine whether the heart of the book is the ideas (which to someone such as myself who has only a Stats 101 background in probability are almost always revelation-inducing) or the author. I can't stress how much I learned from this book that has nothing to do with probability or statistics, just random asides from an erudite and meandering mind. Regardless of your background (or even your interest in probability) you will probable learn some fascinating and/or useful tidbit from Fooled, and probably a whole lot more.
Top reviews from other countries
In another instance, Nassim criticises an interviewer for pointing out to an expert that his ideas if followed would have caused a loss. Nassim doesn't explain why this objection is invalid.
On the plus side, there are some interesting ideas here:
- We're good at understanding even bets, where there's a 50% chance in your favor, not skewed bets, where the chance is more on one side.
- A 20% chance of making 1 crore is not the same as a 10% chance of making 2 crores, though both have the same expected value of 20 lac. Expected value is not the only factor in analysing bets.
- The human mind is poor at understanding probabilistic thinking, because it's counter-intuitive.
- When Nassim was asked on one instance whether he thinks the market will go up or down, he said that it's likely to go up but he bet that it went down. Why? Because if it goes up, it goes up only a little, but if it goes down, it's expected to go down a lot, so the expected value is negative.
- The more often you check your portfolio, the more likely you'll find dips, which will make you feel bad. A negative event isn't counter-balanced by a positive event — it requires roughly two positive events to counter-balance it. So Nassim, aware of his own irrational mind, checks his portfolio rarely. And so should we.
- Randomness plays a big part in outcomes, and most people take credit for good luck but blame bad luck on things beyond their control. Plus there's so much ego involved.
- A family earning half a million dollars a year and staying in fashionable Park Avenue in New York, where they're the poorest in their apartment building, will be happier if they move to a middle-class area, where people will look up to, not down at, them.
- A person who repeatedly takes bets and is proven right for a decade can still be wrong, and gives us the example of a trader who was right for two decades, and then went bankrupt. If you bet that rare things won't happen, it may take a decade or two for luck to catch up with you.
- Everyone assumes rare things won't happen, while Nassim bets that they will. Nassim loses money every day for years, and finally earns a lot to make up for all the losses, though it's emotionally draining to see money go out every day. Nassim knows his worst-case scenario, while others don't.
- Wall St banks have bad incentives and will never behave properly. Bad behavior is ignored as long as it produces a profit.
- "Stochastic" means a process consisting of a sequence of random events. Not one event.
- Monte Carlo techniques are computer programs that simulate thousands of scenarios, all random, and give you a conclusion like: 20% of the time, you go bankrupt. 30% of the time, you make a million dollars. The rest of the time, you earn a modest return of 10-20% on your investment. This is a much better way of analysing things than a single number, like: what is the probability that this investment technique produces a 15% profit?
- Monte Carlo techniques are the only option when the equations to model things are too complex. Monte Carlo is brute force, and works.
- Survivorship bias means that the average fund manager has a high return because the rest are out of business. If you count them, the average return is low.
- Nassim is an intellectual and prefers thinking to working.
Avoid this empty piece of fluff and go read "thinking fast and slow".
I find Taleb all over the place.
Somehow he is trying to provoke. Provoke by calling people ugly, or saying that he would rather die than be a janitor. He classifies all sorts of people in all sorts of ways, in other words name-calling. He uses rare words, so you have to consult with the dictionary quite often. I find him funny but the information he conveys not very useful to me, only a few things here and there.
This was my first Nassim Taleb book I've read, so I can't compare to his two main books Anti-fragile & The Black Swan, although I will be reading those next.
Is it only for numberphiles? No, it probably is too basic for the ‘initiated’; even though they still might enjoy the examples and life stories.
Everything is well explained in a simple manner; probably also because Taleb is not as brilliant as he thinks.
The outcome is a practical theory, exciting, and filled with anecdotes of an unusual character.
Lets put it this way, this book makes a dry theory entertaining and accessible to everyone. That should be applauded.