Fooled by Randomness - Nassim Taleb
After reading most of his later books, I had to jump back to the beginning with Fooled By Randomness. On one hand this is a great summary of the humbling nature of randomness applied to both the financial world (Taleb’s specialty) as well as the rest of the world. As humans we tend to over emphasize determinism, and under emphasize the role of luck and randomness. On the other hand, Taleb appears to enjoy tearing down most everyone who succumbs to the anti-randomness bias.
A fun read the entire way, told through stories and vignettes as opposed to facts and figures.
The same delusion of mistaking irreverence for arrogance (as I noticed with my message) makes people confuse skepticism for nihilism.
It is a mistake to use, as journalists and some economists do, statistics without logic, but the reverse does not hold: It is not a mistake to use logic without statistics).
Mild success can be explainable by skills and labor. Wild success is attributable to variance.
The reader can imagine my disappointment at realizing, while growing up as a practitioner of randomness, that most poetic sounding adages are plain wrong. Borrowed wisdom can be vicious. I need to make a huge effort not to be swayed by well-sounding remarks. I remind myself of Einsteins remark that common sense is nothing but a collection of misconceptions acquired by age eighteen. Furthermore, What sounds intelligent in a conversation or a meeting, or, particularly, in the media, is suspicious.
Now the civil servant called the trades that ended up as losers gross mistakes, just like journalists call decisions that end up costing a candidate his election a mistake. I will repeat this point until I get hoarse: A mistake is not something to be determined after the fact, but in the light of the information until that point.
The opportunity cost of missing a new new thing like the airplane and the automobile is minuscule compared to the toxicity of all the garbage one has to go through to get to these jewels (assuming these have brought some improvement to our lives, which I frequently doubt).
And, at any point in time, the richest traders are often the worst traders. This, I will call the cross-sectional problem: At a given time in the market, the most successful traders are likely to be those that are best fit to the latest cycle. This does not happen too often with dentists or pianists because these professions are more immune to randomness.
In his Treatise on Human Nature, the Scots philosopher David Hume posed the issue in the following way (as rephrased in the now famous black swan problem by John Stuart Mill): 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.
Something about the praise lavished upon him for living in austerity while being so rich escapes me; if austerity is the end, he should become a monk or a social worker we should remember that becoming rich is a purely selfish act, not a social one. The virtue of capitalism is that society can take advantage of peoples greed rather than their benevolence, but there is no need to, in addition, extol such greed as a moral (or intellectual) accomplishment (the reader can easily see that, aside from very few exceptions like George Soros, I am not impressed by people with money). Becoming rich is not directly a moral achievement, but that is not where the severe flaw in the book lies.
I am glad to be a trader taking advantage of peoples biases but I am scared of living in such a society.
The first lesson I took from the story is not to even attempt to be Odysseus. He is a mythological character and I am not. He can be tied to the mast; I can merely reach the rank of a sailor who needs to have his ears filled with wax.
The problem is as old as leadership. Our attribution of heroism to those who took crazy decisions but were lucky enough to win shows the aberration we continue to worship those who won battles and despise those who lost, no matter the reason. I wonder how many historians use luck in their interpretation of successor how many are conscious of the difference between process and result.
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