FrankH's Reviews > Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

Fooled by Randomness by Nassim Nicholas Taleb
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Sep 11, 2012

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Read in September, 2012

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 qualified by the magnitude of outcomes, the black swan event, and Burdian's donkey or how randomness can sometime be our friend. One of Taleb's main points is that the human brain is not hard-wired to understand the impact of randomness on probability and indeed there was one example -- doctors evaluating the incidence of disease in a scenario of false positives -- that I did not completely follow, though the explanation was lucid enough. Randomness perplexes us because as pattern-making animals, we can't pattern it. For the most part, however, Taleb provides clear examples how intuitive thinking often leads us astray. Most of these examples manifest as stories about successful equity and debt investors that eventually implode and reflect the author's point of view that survivorship bias lies at the bottom of Wall Street hubris. Readers with no background in the markets may be put off by Taleb's overt sarcasm directed at the Masters of the Universe; I enjoyed it -- we're birds under the feather. Still, the net-net of the book could have been delivered in an extended essay reflecting Taleb's wide-ranging interest in philosophy but a more organized and incremental approach to the material.

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