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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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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.
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.
Copyright 2001 Cahners Business Information, Inc.--This text refers to an out of print or unavailable edition of this title.
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Top Customer Reviews
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.
I read this book because I had no understanding of randomness. Well, not a good understanding of statistics and the world.
When I first read the book, it was interesting but I didn't understand much.
Now after many years, as I think about the content, I have much more appreciation Everyone should deeply understand the survivorship and hindsight biases, as well as the difference between conditional and unconditional probability. And of course, RANDOMNESS (or noise) in the world, including financial markets.
Also, after investing for almost a decade, now I see the advice on not how to invest: being overconfident on estimates, changing stories, no clear plan, and not really thinking through (Yes...I have committed all these errors and probably still committing some of them...)
Overall, excellent book, I highly recommend reading the book.
It is one of the books recommended by great investors :D
This is an interesting idea, and deserves some thought. Unfortunately, Taleb immediately sets the tone of his book as a pseudo-intellectual examination of the human approach to life and wealth. He writes about an obscure historical story of King Croesus and Solon. Solon tells Croesus to not be so proud of his riches, because times can change, and his riches can disappear quickly. Voila, Solon turns out to be right - Croesus loses a battle to King Cyrus and loses everything he owns. Taleb celebrates this story's moral as one of his book's finest points: "it ain't over till it's over." My response is: "huh!? no shit."
Taleb then launches into a discussion of how everyone in the world is "fooled by randomness." He writes chapter upon chapter of pseudo-philosophical discourse on how we leave ourselves open to large risks, often without understanding them.
Throughout the entire book, there are really only two points that I remember, or that I considered worth noting:
1. Understanding and braving a certain risk is vastly different from blindly pushing ahead and ignoring the downside of your actions. Taleb makes a point that many people are unfortunately ignorant of various risks and are hence surprised by certain outcomes of their decisions. He describes a "mistake" as something that can be decided before an action's outcome is known. Just because an outcome is positive, that doesn't mean the decision to take the action wasn't a mistake. In other words, Taleb clearly separates decisions and their outcomes.
2. There is a problem with induction. Often we make generalizations based on data that seem complete but aren't. His example is that of a "black swan." Those who observed swans everywhere but in Australia came to a conclusion that all swans are white. However, once a black swan was discovered in Australia, this theory turned out to be false.
These two points are excellent and can serve as good food for discussion. However, Taleb's thesis, combined with these ideas, does not require 300 pages of numerous tangents and irrelevant quotations. At times, Taleb's writing seems simply like a collection of favorite sayings from other big-name authors.
In the last part of the book, Taleb writes about how he himself is also "fooled by randomness" and is not entirely logical about various things. While it's admirable of him to admit his own shortcomings, the reader does not need 80 pages of self-searching.
+ an interesting view on investment and risk
+ contains a few thoughtful discussions (see 2 points above)
- unorganized; has too many tangents and irrelevant quotations
- very repetitive, could be cut down to 50-100 pages
- written with an annoying "better-than-thou" attitude (note how one of the tags for this book is "humility" - hah!)
- has too much self-searching and too many references to how Taleb was exercising or spending time in the gym when he thought of something exciting