Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

4.0 of 5 stars 4.00 · rating details · 9,899 ratings · 591 reviews

“[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

Finally in paperback, the word-of-mouth sensation that will change the way you think about the markets and the world.This book is about luck: mor...more

Paperback, 368 pages

Published August 23rd 2005 by Random House Trade Paperbacks (first published 2001)

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Nov 18, 2008 Trevor rated it 4 of 5 stars

Shelves: economics, behavioural-economics, psychology, social-theory

Yeah, you see. I’ve just checked and most of the other reviews of this book do pretty much what I thought they would do. They complain about the tone. This guy is never going to win an award for modesty and he probably thinks you are stupid and have wasted your life. And it gets worse – like that quote from Oscar Wilde that has tormented me for years: “Work is the refuge of people who have nothing better to do”, this guy reckons that if you work for more than an hour or so per day you are probab...more

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Oct 02, 2007 Steve rated it 2 of 5 stars

Renowned statistician George Box once said, “All models are wrong, but some are useful.” The author of Fooled by Randomness is all over the first part of this statement, but apparently doesn’t consider it part of his job as an iconoclast to say anything about the second. Taleb goes to great lengths to point out how some of the original assumptions made in investments and finance have blown up in people’s faces. Yes, unusual events do happen more often than a normal distribution suggests. Yes, re...more Renowned statistician George Box once said, “All models are wrong, but some are useful.” The author of Fooled by Randomness is all over the first part of this statement, but apparently doesn’t consider it part of his job as an iconoclast to say anything about the second. Taleb goes to great lengths to point out how some of the original assumptions made in investments and finance have blown up in people’s faces. Yes, unusual events do happen more often than a normal distribution suggests. Yes, relationships among securities can change in meltdown scenarios. And yes, people are regularly fooled into thinking luck is skill. However, some market participants are clear-sighted enough to see those shrouded risks for what they are and make better assumptions about how they should be traded off against expected returns. These more enlightened investors don’t get the print, though, since they’re not the straw men Taleb can knock down.

Don’t get me wrong. We all like debunking stodgy, established wisdom when we see the holes. If you’re like Taleb, though, and see only holes, what you’re left with is nothing. What might there be in its place? Some models, when tweaked, are still useful.

In a brief moment of modesty, Taleb confesses to psychological weaknesses that can lead him to mistake noise for signal. He seems rather smug about it all, though. It’s like he figures his ability to recognize himself as a fool puts him on a higher plane. For the most part, his ego is openly displayed. It’s also coupled with an axe to grind – an aggressive combination. His fund has consistently underperformed (though he would counter that he’s positioned just right for the coming holocaust). His investment strategy boils down to buying lots and lots of insurance contracts against rare occurrences that he thinks will be slightly less rare. (In actuality, he buys stock options, but the insurance metaphor illustrates the point.) The problem is he’s so firm in his belief that the insurance companies have underestimated risks that he thinks all premiums are too low. However, those selling options, armed with models that account for rare events appropriately, will charge more than enough to cover those risks.

Who will be fortune’s fool? Time will tell, but a provocateur like Taleb will in all probability be better known for his quasi-epistemological exposition on unanticipated variability than for any true investment success.
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Aug 25, 2007 Nicholas rated it 3 of 5 stars · review of another edition

"Expect the unexpected" -- an aphorism that almost completely summarises the book. Cliches exist for a reason, but 196 pages later I feel the point has been well made.

Taleb is a stock market trader. As a trader, he believes that there is no way in general to predict the stock market -- that there are so many variables that the resulting stock price is indistinguishable from pure noise. Unfortunately, his profession is filled with people who believe that they *can* predict the market. In fact, so...more "Expect the unexpected" -- an aphorism that almost completely summarises the book. Cliches exist for a reason, but 196 pages later I feel the point has been well made.

Taleb is a stock market trader. As a trader, he believes that there is no way in general to predict the stock market -- that there are so many variables that the resulting stock price is indistinguishable from pure noise. Unfortunately, his profession is filled with people who believe that they *can* predict the market. In fact, some of these people trade very successfully for a while. Taleb belives that no trader can stay ahead of the market forever. The success of a small number of traders for a short amount of time can simply be explained by statistics: after all, given a large enough group of traders, some are bound to be successful some of the time even if their trades are entirely random.

This point is well illustrated with many examples, and this is where the book falters for me. Some of the examples are great (he goes into a lot of detail about various Monte Carlo simulations he has constructed), but some just seem like strawmen (he goes to a lot of trouble to describe the fancy cars, extravagant house, impulsive trading strategy, and hubris of a hypothetical trader, setting him up for his inevitable fall at the hands of the "unexpected rare event").

Some examples are just plain wrong, or at least misleading. For example, he goes into detail describing the work of Karl Popper, a philosopher who was interested in the question "how do you tell the difference between science and non-science?" Popper proposed several theories of science to answer this question.

The first, naive falsificationism, essentially states two things: firstly, that a theory is scientific if it can be falsified; and secondly, that a theory which has been falsified should no longer be used.

The second, sophisticated falsificationism, was a response to both the negativity of naive falsificationism and also a response to the criticism that science doesn't work that way (by immediately discarding theories the moment they contradict any evidence). Sophisticated falsificationism again states two things: that a theory is scientific if it leads to the discovery of novel (ie, new) facts; and that a theory is falsified by a new theory if the new theory can accurately predict everything the old theory could but *also* can accurately predict novel facts. General relativity is the canonical example of this: it incorporates Newtonian mechanics at low speeds but also explains things that Newtonian mechanics cannot at near-light speeds.

Anyway, Taleb's summary of all of this was "Popper's detractors called him a naive falsificationist." They did not, or at least not disparagingly, because Popper himself proposed the term, and labeled himself accordingly! I can understand why Taleb might not have wanted to include a huge explicative paragraph on Popper, but the book would have been just fine without the dubious example.

Another example of sloppiness occurs later, when Taleb talks about the QWERTY keyboard layout as an example of "the vicious dynamics of winning and losing in an economy" and repeats the old saw that the QWERTY layout was designed to slow typists down, and that it succeeded anyway because of a "snowball effect" of popularity. This claim is highly contentious (in fact one way to both speed typists up and prevent mechanical key jams is to put commonly-used letter combinations on opposite sides of the keyboard, something that QWERTY does to some extent but that Dvorak does much better), and once again the book would have been just fine without it.

Taleb is best when he is covering his area of expertise -- probability -- and the chapters dealing with probability are great. There are also several enjoyable and illustrative personal anecdotes which are a fun and memorable read.

Overall I enjoyed the book. I just wish he'd put more thought into his examples.(less)

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Dec 14, 2008 Carolyn rated it 5 of 5 stars Recommends it for: everyone. The concepts in this book are invaluable for those developing critical thinking skills.

Shelves: economics

This is the best book I have read all year, closely followed by his other book, The Black Swan. Fooled by Randomness is one of that select group of books that changes your mind entirely. Once I read it I could never look at the world the same again, nor could I take my old assumptions for granted.

We are so accustomed to looking at the world and seeing patterns that we do not always understand that we may be seeing randomness and imposing a pattern where none belongs. Taleb talks about the variou...more

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Jan 01, 2009 Philip rated it 3 of 5 stars

I love the theses that he has in the book, but jesus christ, this is horribly written.

I think the powerful ideas could have been condensed down to a New Yorker length article:
1. We tend to see the "survivors"; by hiding those who have failed, our understanding of many systems is skewed.
2. Leveraged betting on conventional wisdom provides consistent returns in the short run, but can explode when something weird happens (his "black swan idea").
3. You can reproduce the results of many systems by s...more

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Mar 02, 2008 Tony Cohen rated it 5 of 5 stars

This is one of the best books I have ever read. It has everything in a book that I yearn for....interesting ideas...some of which I don't grasp because hey are too clever for me...a smug narrator who seemingly knows more than everyone else...and a well-written and pleasing style.

Here is the crux of the book. Brokers have a very common weakness. They fail to appreciate that the likelihood of an event can not be the only factor one looks at when deciding to make a move. The likelihood, and the cos...more This is one of the best books I have ever read. It has everything in a book that I yearn for....interesting ideas...some of which I don't grasp because hey are too clever for me...a smug narrator who seemingly knows more than everyone else...and a well-written and pleasing style.

Here is the crux of the book. Brokers have a very common weakness. They fail to appreciate that the likelihood of an event can not be the only factor one looks at when deciding to make a move. The likelihood, and the cost of the mistake are both critical.

For example. If I told you that you could make $ 100 on every trade for 99/100 times, would you do it? The correct answer, depends on what happens on the other chance. When you are in a market, or some other experience where there are lots of repeated throws of the dice, the rare odd will happen, which is often when you hear of a trader 'blowing up'. When that happens, the greater and powerful "Master-of-the-Universe" disappears, and is banished forever...deemed a failure by his peers. What happened, is that he was unaware of the 'Black Swan', the title of another book by the same author.

In Europe in the middle ages, because all swans that had been seen were white, it had been postulated that ALL swans were white...a fallacy ultimately disproven when the contrary evidence was eventually found in Australia. In basic logical terms, the absence of B within a data set not proven to be the entire sum does not equal 'always A'.

So this 'Black Swan', the one throw out of 100 can and does happen. In the previous example, if you won all the previous 99 throws, you would have earned $9900. That sounds great, until you learn that loosing the final throw costs you $200,000. Knowing those odds, would you play the game? This basic fallacy, the lack of assessing the intensity of the randomness, is what dooms many people who sound well and truly brilliant...right until they blow up and are never heard from again.

Of course, there are other brilliant comments on the need to ignore useless and irrelevant noise, and train ourself to recognize that a random fluctuation is just that, and one should not search for a reason for mere statistical chatter, but the analogy of the black swan is the main crux of this wonderfully well-written book. (less)

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Mar 02, 2009 Gordon rated it 4 of 5 stars

This is a book by a trader with an intellectual streak -- although he might say he’s an intellectual with a trading streak. Nassim Taleb's book is highly idiosyncratic and personal, which is both what lends it a lot of its interest and what occasionally makes it irritating. Overall, he does not seem like a likeable man, and in fact is probably proud of that fact. But, it does get kind of tiresome to be told for the 5th or 10th time how unimpressed by wealth he is. In fact, he is clearly impresse...more This is a book by a trader with an intellectual streak -- although he might say he’s an intellectual with a trading streak. Nassim Taleb's book is highly idiosyncratic and personal, which is both what lends it a lot of its interest and what occasionally makes it irritating. Overall, he does not seem like a likeable man, and in fact is probably proud of that fact. But, it does get kind of tiresome to be told for the 5th or 10th time how unimpressed by wealth he is. In fact, he is clearly impressed by wealth, but counteracts it by stressing how little he works, how much time he devotes to intellectual pursuits and how much smarter he is than the typical wealthy person. But, all that’s just literary style -- and apparently a very popular one, judging by the sales of the book. It remains a fascinating book nonetheless.

Key ideas: We do not gauge causation, probability and risk very well, and hence we do not act according to a rational model of behavior, a la homo economicus. His heroes are Nobel Prize-winner Daniel Kahnemann and Amos Tversky, whom Taleb sees as the greatest thinkers in modern economics, since they re-wrote the book about how we actually decide as opposed to how economists and other rationalists think we ought to decide. Based on their work and that of a host of other researchers in behavioral economics/finance, he catalogs many of the systematic biases that strongly affect our behavior, such as:
o Hindsight bias: We fit the explanation to the events after the fact, as if we knew it at the time. And, we see patterns where there are none – or we see the wrong pattern. Mistrust the predictions of experts – they will almost always be trumped by an evidence-based analysis, since they tend to mis-remember the past. They remember their successes and forget their failures.
o Attribution bias: Beautiful people are more virtuous than ugly people. Tall people are more likely to be leaders than short people. A man in a suit is more trustworthy than a man in t-shirt and jeans. And so on.
o Small number bias: We extrapolate wildly from small samples.
o Asymmetric pain/pleasure from losses or gains: The pain of a loss is roughly twice as much as the pleasure from an equivalent-sized gain. So we sell our winners but keep our losers (to avoid having to feel the pain).

In short, life is more random than you think and your ability to navigate it rationally is more limited than you think.

What do I think of all this? He's right that it's a good idea to keep an open mind and to be ready to change your mind when you come up with a better interpretation and/or a more accurate set of facts. So far, so good. But his core world view is the product of the only profession he's ever known: Wall Street trading. As such, he does not shape let alone control events -- he simply bets on their outcome. That's not the kind of perspective that makes you see the world as a highly deterministic place, or one where, if you hope to survive long enough to get a few gray hairs, you can think of yourself as a "master of the universe" or even captain of your ship. He doesn't want to be captain of the ship; he just wants to bet on whether the ship will sink in the next storm or not, and turn a profit on the bet.(less)

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May 28, 2008 Kate rated it 3 of 5 stars

Well, if you can get beyond the fact that Nicholas T Taleb most likely hates you, his arguments are valuable. The idea of the book is that we discount the true probablistic picture of most situations and make decisions that we think are smarter than they are... we are lucky enough just not to get caught. He hates people who think they made wise decisions but were, in fact, just fortunate not to experience the bad outcomes. Hates them. They are so incredibly stupid. The neat idea I found myself c...more

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Jul 14, 2007 todd rated it 4 of 5 stars · review of another edition

This is a reread of Taleb's first discourse on probability and markets, which I wanted to reread after reading The Black Swan earlier this year. I still found the ideas important and well organized. There was just a hint of the author's attitude that literally permeated the second book, making this a much more effective read.

Anyone reading both books might get the impression that this guy is an infalible trader. He is, if there are regular market catastrophes. He started his own fund based larg...more

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May 17, 2007 CJ rated it 3 of 5 stars Recommends it for: people who think they are better than journalists, pundits, economists, or sociologists

The book is an easy read and most of what it offers can be gleaned from undergraduate level statistics and psychology classes. Specifically: a catalog of unintuitive statistical results, and explanations/anecdotal examples of many psychological biases, and a lecturer with a swollen ego.

I read a used copy of this book lent to me by a friend who peppered it with wonderful marginalia. My favorite of these captured the narrative tone well in response to the author making a fairly mild generalizatio...more

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Feb 10, 2012 Steve Bradshaw rated it 3 of 5 stars

Shelves: investment

Nassim Taleb has to be a strong contender for the title of Most Pretentious Author of the 21st century. Despite his obnoxious writing style, he has created an interesting synthesis of existing ideas that speak powerfully to societies inability to appreciate the role of chance when looking back at events, and to underweight the probability of extremely unlikely outcomes.

Unfortunately these ideas come littered with classical references, none of them properly explained, that do little to strengthe...more

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Aug 06, 2011 Andrew added it

We live in a world of excessive information. Financial news journalists try and explain a daily 1.5 points fall in the Dow (which stands at above 10,000). Such an insignificant change is most probably attributed to randomness. The author argues that most of the timeseries data we observe is ridden with randomness which is useless to explain and even more futile to predict. We should extend the timeseries to infinity as this, by construction, reverts the data to its steady state (ergodicity). In...more We live in a world of excessive information. Financial news journalists try and explain a daily 1.5 points fall in the Dow (which stands at above 10,000). Such an insignificant change is most probably attributed to randomness. The author argues that most of the timeseries data we observe is ridden with randomness which is useless to explain and even more futile to predict. We should extend the timeseries to infinity as this, by construction, reverts the data to its steady state (ergodicity). In finance we use instead Monte Carlo engines to generate many possible paths that the timeseries could have taken. The average is said to lie close to the steady state.

Taleb, using various research including that of Tversky from the Behavioural School, contends that people are genetically prone to be fooled by randomness. It is therefore important, he claims, for people coming from the different walks of life (medicine, law, economics, finance etc) to develop a more critical thinking by studying probability theory.

In his book Taleb was a very harsh critic of Financial theory, that which Berstein refers to as Capital Ideas. Capital Ideas include among others the works of Markowitz, Merton, Scholes, Black, Miller and Modigliani. Taleb predicts that in a couple of decades' time we shall be laughing off Capital Ideas just like we do today with the "scientific establishments of the Middle Ages". He uses the collapse of Merton and Scholes' Long Term Capital Management (LTCM) to prove the point. Taleb doesn't seem to share the view that the failure of LTCM was attributed to a ten sigma event. Such a critique is perhaps unfair as I could not understand how even the most excellent command of probability theory could have helped the analyst to forecast the 1998 Russian's parliament unwillingness to devalue their currency as was expected by the market. To make their point the Russian authorities simply closed the Duma and left for summer holidays! (Akerlof's Signalling Theory).

In this respect I tend to find the views of Bernstein more plausible. Capital Ideas have been published across a span of 20 years, which is a relatively short period of time (economic theory for instance took 160 years from Smith and Ricardo to Keynes). Markowitz, Merton and the rest did not intend to present a theory which explains reality but rather a theory which helps us understand reality better. And more importantly these Capital Ideas are evolving.

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May 17, 2013 John rated it 5 of 5 stars · review of another edition

Most decisions in our lives we base on what we expect the future to hold. Our ideas of the future are based on what happened in the past. Unfortunately, our brains are not particularly good at that.

For one thing, emotions pay a large part, if not dominant part, in what we expect and why we make the decisions we make. For one reason, we never know anything to a complete certainty. Emotions help fill the gaps in knowledge and in reasoning. They allow us to decide faster, and when we are aware that...more

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Mar 23, 2013 Shalom rated it 4 of 5 stars · review of another edition

This review has been hidden because it contains spoilers. To view it, click here. This book is clearly very intelligent, much more so than I. He is a bit conceited and narcissistic and believes that everyone in the entire trading world is a fool, except for him, because they dont understand the rules of probability as well as he. An enlightening book that re-ignites my desire to re-learn probabilities (one that I will fulfill shortly).
Aut tace aut loquere meliora silencio - only when the words outperform silence.
Solon's warning - " The observation of the numerous misfortunes...more

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Mar 13, 2013 Bevan rated it 4 of 5 stars

Probability and chance fascinate me. Many people believe in fate, or argue over the role of chance in the course they have taken in their lives. Those of us who operate in the world of financial speculation find ourselves at the 'cutting edge' of randomness, chance and the un-knowable future in a very tangible way day by day. It is odd then that humans seem to be poorly programmed to win at the probability game. In fact in most situations we usually make the mathematically irrational choice, oft...more Probability and chance fascinate me. Many people believe in fate, or argue over the role of chance in the course they have taken in their lives. Those of us who operate in the world of financial speculation find ourselves at the 'cutting edge' of randomness, chance and the un-knowable future in a very tangible way day by day. It is odd then that humans seem to be poorly programmed to win at the probability game. In fact in most situations we usually make the mathematically irrational choice, often choosing a poorer but certain outcome rather than one which mathematically generates a better expected return or outcome.

This important book highlights the centrality of probabilistic outcome in almost everything we do. It emphasises our exaggerated tendency to claim or allocate credit to people (e.g. CEOs of successful or unsuccessful companies) on the basis of ability rather than luck. This tendency is not only myopic, it is also dangerous. Taleb particularly highlights the false sense of security that exists in distorted situations where a highly likely beneficial scenario is paired with an unlikely, but extremely dangerous outcome. The classic example is in the market, where naked option sellers are able to pursue a 'reliable' strategy with steady small profits, but place themselves in a situation where extreme market movements can erase years of profits in days. These 'hidden risks' are explored in more depth in Taleb's later book The Black Swan which was especially prescient as it was published immediately before the 2007-08 financial crisis. The Black Swan revealed massive hidden risks concealed behind commonly accepted but flawed risk calculation models such as VAR.

Taleb writes in a conversational style that at times is a little indulgent. It is a very personal book with many asides regarding artistic preferences, and which invokes some of his pet subjects such as philosophy and poetry. I enjoyed this however others might feel this detracts from the central argument. It is a very personal argument as well, with examples that appear to be based on individuals known by Taleb and largely based on his expertise in the financial markets. It will provoke contemplation about both the source of our own success and also about the risks that we may not have considered. As an example it would have been (and may still be) valuable for instance to many who have highly leveraged themselves in purchasing property but who have not thought through the consequences of unemployment.

Action on these ideas will encourage a more robust investment strategy, and indeed life in general. Perhaps Taleb could have given a few more 'real world' examples from outside the world of finance to help people considering these ideas in a wider sense. Certainly he has written an eloquent and colourful account highlighting important concepts which may influence philosophical thought in years to come, and will hopefully have a practical impact on risk management and regulation in financial markets.(less)

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Feb 26, 2013 Marvin chester rated it 1 of 5 stars

You can't learn anything from this book; it's just a rant. The author's message is an incessant din of, 'I'm smart. They're stupid'

"trading rooms were populated by people ..devoid of any introspection, flat as a pancake..." p28

"these scientists ... devoid of the smallest bit of practical intelligence" p 30

The author likes the word 'devoid'.

"I was saved from the conversation of MBAs."

"but i could not conceal my disrespect ... as he could not make out the nature of my conversation" p.31

"a journal...more

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Jan 12, 2013 John Hill rated it 4 of 5 stars

I am no expert on anything financial or statistical. In fact, I am just about illiterate when it comes to higher math (anything about Trig); but, I did find Taleb's book "Fooled By Randomness" to be an interesting read into the hidden power of statistics and randomness in our lives. And how that randomness can be often erroneously seen as something other than random luck (skill, intelligence, charisma, etc.)

I found myself looking at the world through new eyes as I worked my way through this boo...more

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Nov 04, 2012 Gordon rated it 4 of 5 stars

Shelves: decision-making-planning, economics-human-behavior

Ever since I read The Black Swan, I knew I had to come back and read Fooled by Randomness. When Nassim Taleb released a revised audible edition this year I seized the opportunity. A great listen and read for any leader as well as anyone in the finance and economic field (the primary audience I suppose, although he ribs MBAs from start to finish). Irreverent, scholarly, worldly, this appealed to me in as much an esthetic was as it did in the science behind his thesis. We are ruled and fooled by r...more

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Sep 11, 2012 FrankH rated it 3 of 5 stars

After reading this entertaining treatise on probability in life and in the markets, I reviewed each section, noting specific aspects of probability, absent any of the anecdotal rhetorical embellishments provided by the author. These attributes -- I counted a couple dozen of them -- are detailed in discussions covering such ideas as survivorship bias, the importance of confidence in measurements (Wittgenstein's Ruler), attribution bias, the flawed decision-making by induction alone, probability q...more

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Sep 05, 2012 Kislay Verma rated it 4 of 5 stars · review of another edition

I have a full review at SolomonSays, but here's the tl;dr.

Fooled by Randomness is an inquiry into the nature of knowledge, and a critique of how we use this knowledge. For me, the very incidence of finding a book that attacks our "common-sense" concepts of ability and success in such a head-first manner was refreshing. Even more exciting was that the arguments are not rhetorical. This book is "Outliers" (Malcolm Gladwell) on steroids. While "Outliers" only looks at certain specific kinds of situ...more

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May 21, 2012 Greg Talbot rated it 4 of 5 stars

Thumbing through "Fooled By Randomness", Taleb's fleet prose is both fascinating and questionable. Fascinating because the topic of randomness, and its role in our lives is immeasurable. Maybe it's because i've focused on personal investment as my reading pastime lately, but the financial stories (Nero the daytrader, behavioral economics) feel the most grounded. What gets questionable is that theory and insightful discussion are paddled off for silly tangents. Consider the philosophical section...more

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May 12, 2012 Kaitlin rated it 2 of 5 stars

I enjoyed some of the ideas in this book, but there weren't too many of them. I found the book to be redundant and rambling at times.

However, the author does a great job of making the book accessible to many types of readers. I work in finance, but this book isn't really about finance. There is very little finance jargon (or even tough vocab) in here, and what little there is is well defined. There are also no abstract concepts the author doesn't explain well (sometimes too well - get on with it...more

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Apr 27, 2012 Alejandro Teruel rated it 3 of 5 stars

Shelves: economia, usb, matemáticas

An interesting read with great reminders of some common probabilitic and statistical pitfalls and counterintuitive ideas.

Most of the reviewers comment on the abrasive writing style and the important statistical ideas the author applies to stock market trading, plus the soft spot for behavioural economics -a soft spot I happen to share.

However, many of the key ideas in the book are based on the (unproven) assumption that price fluctuations in the stock market are basically random processes. But,...more

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Mar 27, 2012 Christian rated it 2 of 5 stars · review of another edition

Shelves: finance

Because I strongly prescribe to the authors premisse that chance plays a major role in life, although we are naturally bias to believe otherwise, I was really looking forward and prone to enjoy the book. Maybe it was the high expectation, but I was let down.

The chapters and sections are all over the place and the author keeps on mumbling through the book without making any point. At least none that is not already stated on the subtitle. The book talks more about the book and never gets into any...more

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Feb 23, 2012 Stewart rated it 4 of 5 stars

Two years ago, I happened upon "The Black Swan" by Nassim Nicholas Taleb when I was wandering around a Barnes & Noble bookstore perusing various tables. I had been looking for material on the role chance plays in our life, and I accidentally came across Taleb’s book, about how randomness permeates our life, at a sale table. The details of my acquisition of the book lent credibility to its thesis.
Taleb is influenced by Karl Popper and spends many pages in "The Black Swan" and a book written...more Two years ago, I happened upon "The Black Swan" by Nassim Nicholas Taleb when I was wandering around a Barnes & Noble bookstore perusing various tables. I had been looking for material on the role chance plays in our life, and I accidentally came across Taleb’s book, about how randomness permeates our life, at a sale table. The details of my acquisition of the book lent credibility to its thesis.
Taleb is influenced by Karl Popper and spends many pages in "The Black Swan" and a book written three years earlier, "Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets," talking about Popper’s philosophy. I will note that Taleb first came across a book written by the Austria-born philosopher in 1987 at a Barnes & Noble on 18th Street and Fifth Avenue in New York City.
Taleb’s earlier book covers much of the same territory as the later one. He examines financial markets in the U.S. and the role of good luck (and bad luck) in its ups and downs and the success of its practitioners. However, Taleb’s observations can be applied just about everywhere in everyday life. “[W]e underestimate the share of randomness in about everything.”
There are many targets in Taleb’s two books: economists and corporate CEOs are two of them. Other targets are successful businessmen and financial traders and the wealthy. Taleb believes – and I concur – that success and failure in life is largely determined by randomness (or, in other words, chance or events beyond our knowledge and control). But many of the successful and wealthy think they are self-made and obtained their money and success strictly by their own efforts.
“Lucky fools do not bear the slightest suspicion that they may be lucky fools – by definition, they do not know that they belong to such a category. They will act if they deserved the money. Their string of successes will inject them with so much serotonin (or some similar substance) that they will even fool themselves about their ability to outperform the markets ...”
Taleb is a modern Socrates. He thinks that we really know nothing – or more accurately, what we do know is overwhelmed by what we don’t know. Taleb’s two books, with their numerous examples, are an antidote to the hubris that is all too common on Wall Street, Washington, D.C., and Everytown.
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Jul 29, 2011 Nilesh rated it 5 of 5 stars

It is a must read for any professional. It has so many new arguments even for its theories’ most dogmatic believers that it has to be re-read every once in a while. One wonders why Mr Taleb felt the need to write the second one which has nothing not covered well and better here.

Still I would have taken half a star away. The extreme views against newspapers, MBAs, analysts are plain wrong within Mr Taleb's own framework, even if they made an interesting read. Let me briefly explain how (not that...more It is a must read for any professional. It has so many new arguments even for its theories’ most dogmatic believers that it has to be re-read every once in a while. One wonders why Mr Taleb felt the need to write the second one which has nothing not covered well and better here.

Still I would have taken half a star away. The extreme views against newspapers, MBAs, analysts are plain wrong within Mr Taleb's own framework, even if they made an interesting read. Let me briefly explain how (not that he will ever read this review):

1> If the world is truly random, whether you know it is random and accept you are a fool or you do not, it should not matter. You can fool yourself by saying that some Monte Carlo analysis makes you more enlightened about foolishness, but it cannot by definition. If there are no patterns, like in a coin toss, some might kid themselves by being fundamental experts and some through the use of random statistical models but what's the difference?

2> The reality is that the world is random only in parts. By simply looking at statistical history, one cannot evaluate, say, the riskiness of Zimbabwean or N Korean currency versus Euro (the official price of the former two might be pegged). You need to have some fundamental base to select your vehicles. To know their nature. To understand what they mean. For rules and regulations and where they could be changing etc

3> By looking at the worst kind, Mr Taleb ignores that there are many truly knowledgeable people in the world in every field. There might be 90% crowd in financial markets who may not be able to do conditional probability on the trot but there is 10% who can and a lot of the other 90% too deploy it over time or know others around who could for them.

A genuine value is added by many who are summarily dismissed by Mr Taleb. But this is a person who preaches a book while claiming nobody should preach even a word. His preaching is so good that one should just forget about little shortcomings.

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Jul 24, 2011 Tara rated it 2 of 5 stars

One of my business school professors raved about this book. I expected to get an entertaining and informative investment professional's take on how our irrational tendencies keep us from applying basic probabilities that would help us make better decisions.

Instead, this book read like a pretentious, ranting diary. In the introduction, the author brags that he ignored nearly all of the suggested changes his book editors made (he labels book editors along with journalists, MBAs, and most social sc...more

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Jul 19, 2011 Jan-Maat added it · review of another edition

Shelves: 21st-century, society, thinking

I'm not certain if it was this book I read or "Black Swan" by the same author. Importantly I not convinced by the blurbs or the reviews that there is any great significance in this.

I found it one of those books with an interesting premise that grew steadily less interesting as I read. And as I read I had the growing feeling that the book could have been conveniently summerised in a dozen and a half bullet points with a few anecdotes tacked on for amusement. This naturally led me to resent both t...more

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Jul 18, 2011 Andrew rated it 3 of 5 stars

I've now read this book twice. The first time I read it (about 5 years ago) it opened my mind to a lot of new ideas. The second time I read it (about 3 months ago) I was greeted with mixed emotions. The author warns of the dangers of randomness and noise, and yet his book moves in random fashion and is filled with distracting asides (i.e. noise). As a result, I had to work really hard to extract the valuable material from this book. Another problem that shines through is the author's arrogance a...more

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Jun 07, 2011 David rated it 3 of 5 stars

It appears to me that Taleb wrote this book by stringing together a collecting of thoughts on probability and the role of randomness in the world, as I found the writing rather disjointed; but this gives a possible clue to his approach to writing. Taleb’s inimitable style is pedantic with haughty sarcasm and self-aggrandizement, yet he is quick to admit his own susceptibility to randomness errors—he just does it with style, or so he thinks. “I’m not capable of avoiding being fooled by randomness...more It appears to me that Taleb wrote this book by stringing together a collecting of thoughts on probability and the role of randomness in the world, as I found the writing rather disjointed; but this gives a possible clue to his approach to writing. Taleb’s inimitable style is pedantic with haughty sarcasm and self-aggrandizement, yet he is quick to admit his own susceptibility to randomness errors—he just does it with style, or so he thinks. “I’m not capable of avoiding being fooled by randomness, but what I can do is refine it to where it brings some aesthetic gratification.” While this kind of bombast costs him some credibility as an objective truth-seeker or stoic philosopher, it succeeds in making him more entertaining. His work experience as a quant and trader gave him plenty of narrative examples, such as how smart traders are fooled by randomness but think their success is due to their own brilliance. Or as he puts it, “Nobody accepts randomness in his own success, only his failure.” To determine the extent of one’s luck, he says one has to look at the distribution of outcomes in any given subject of study. In a tight cluster, the further out on the tail you are, the more luck probably played a roll in your success or failure. He doesn’t make any discoveries or reveal anything new, and his discussion of the topic is far from comprehensive, but he does make some interesting and brash observations. For example, he thinks we take knowledge too seriously, saying that people read the Wall Street Journal naively thinking that it will make them better forecasters. He prefers to read poetry, knowing that anything really important will eventually make its way to his ears. He’s right that most of the “information” we get from daily publications is just noise and hardly worth the time. He likes Karl Popper (i.e., falsification), acknowledging that the best of thinkers work with bold conjectures and earnestly attempt to refute their own. He also makes an astute observation that the virtue of capitalism is that society can take advantage of people’s greed rather than their benevolence, but that there is no need to extol such greed as a moral or intellectual accomplishment. In other words, greed is not good, but it can have utility. In this respect, then, he actually trades arrogance for humility and it becomes apparent that it is others, lucky fools without the slightest suspicion that they are lucky fools, who are in fact arrogant. He closes the book by essentially reiterating some of the touchstone principles of behavioral economics: “We favor the visible, the imbedded, the personal, the narrated, and the tangible. We scorn the abstract. Everything good (aesthetics, ethics) and wrong (fooled by randomness) with us, seems to flow from it.” (less)

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About Nassim Nicholas Taleb

Taleb was a pioneering trader of complex financial derivatives, and his first major book was a treatise for practitioners. He has since delved into some of the themes that he encountered in that "laboratory" to consider randomness, especially the the epistemology of chance events, more broadly, and his more recent books have sought to make connections between the financial and more general manifes...more

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Books by Nassim Nicholas Taleb

The Black Swan: The Impact of the Highly Improbable

Antifragile: Things That Gain from Disorder

The Bed of Procrustes: Philosophical and Practical Aphorisms

Dynamic Hedging: Managing Vanilla and Exotic Options

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“Heroes are heroes because they are heroic in behavior, not because they won or lost.” — 22 people liked it

“Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.” — 7 people liked it

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