Fooled by Randomness is an iconoclastic book that details how life, success and financial markets are far more shaped by randomness and chance than humans, professionals and academics are predisposed to admit.
Fooled by Randomness Summary
Fooled by Randomness is a Nassim Taleb’s eye catching counterpart and prequel to his bestseller Black Swan.
Written in his trademark irreverent style, the book grapples with the theme that conventional wisdom is frequently at odds with cogent probabilistic thinking resulting in a number of fraudulent heuristics and biases that can be effectively debunked with a little understanding of statistics.
Below are some of the key insights from the book.
- Success is always defined by present moment snapshots but in reality plays out over a longer time series in which random events can dramatically alter the picture.
- Adopting a probabilistic view of the world requires us to hold multiple outcomes in our heads simultaneously which most people find difficult to do.
- As a result of our bias for the present, the role of risk managers is always stymied as their successes our invisible and their failings are very visible.
- Statistics suggests that we can better predict an outcome by acquiring more information about it but in most areas of life people consistently mistake noise for signals.
- Survivorship bias is abundant when studying successful people and runs contrary to statistical rigour where Monte Carlo simulations would suggest most talented prodigies do in fact not become millionaires, writers, successful actors.
- The birthday paradox and the small world coincidence demonstrates that people frequently misunderstand statistics when pairs are not specified.
- The field of behavioural economics runs entirely contrary to the rational actor model upon which all other economic models rest.
- The QWERTY keyboard is an example of how incumbency trumps optimality which is applicable to many successful people e.g. Bill Gates.
- The game isn’t over until the fat lady sings – taken at a glance it might appear that someone is successful or unsuccessful but as a time series plays out the impact of randomness can radically reshape fortunes in a way that is blind to past performance or claims of talent (The Tale of Two Traders)