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I am not capable of avoiding being the fool of randomness; what I can do is confine it to where it brings some aesthetic gratification.
Past events will always look less random than they were (it is called the hindsight bias).
You can mispredict everything for all your life yet think that you will get it right next time.)
I believe that the principal asset I need to protect and cultivate is my deep-seated intellectual insecurity.
It certainly takes bravery to remain skeptical; it takes inordinate courage to introspect, to confront oneself, to accept one’s limitations
Strangely, one needs to use the press to communicate the message that the press is toxic.
Just as one day some primitive tribesman scratched his nose, saw rain falling, and developed an elaborate method of scratching his nose to bring on the much-needed rain, we link economic prosperity to some rate cut by the Federal Reserve Board, or the success of a company with the appointment of the new president “at the helm.”
have suffered the conflict between my love of literature and poetry and my profound allergy to most teachers of literature and “critics.”
“rich as Croesus”
“it ain’t over until it’s over,”
mostly the activities of the goddess Fortuna— Jupiter’s firstborn daughter.
things that come with little help from luck are more resistant to randomness.
Solon even understood another linked problem, which I call the skewness issue; it does not matter how frequently something succeeds if failure is too costly to bear.
Nero believes that risk-conscious hard work and discipline can lead someone to achieve a comfortable life with a very high probability.
Intellectual contempt does not control personal envy.
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.
Realism can be punishing. Probabilistic skepticism is worse.
Heroes are heroes because they are heroic in behavior, not because they won or lost.
people often confuse complex ideas that cannot be simplified into a media-friendly statement as symptomatic of a confused mind.
MBAs learn the concept of clarity and simplicity—the five-minute-manager take on things. The concept may apply to the business plan for a fertilizer plant, but not to highly probabilistic arguments—which is the reason I have anecdotal evidence in my business that MBAs tend to blow up in financial markets, as they are trained to simplify matters a couple of steps beyond their requirement. (I beg the MBA reader not to take offense; I am myself the unhappy holder of the degree.)
This is one of the many reasons that journalism may be the greatest plague we face today—as the world becomes more and more complicated and our minds are trained for more and more simplification.
Mathematics is principally a tool to meditate, rather than to compute.
Some people’s brains and intuitions are oriented in such a way that they are more capable of getting a point in such a manner
But there was one exception; some of those who traded options (I called them option buyers) had remarkable staying power and I wanted to be one of those. How? Because they could buy the insurance against blowup; they could get anxiety-free sleep at night, thanks to the knowledge that if their careers were threatened, it would not be owing to the outcome of a single day.
Several branches of research have been examining our inability to learn from our own reactions to past events:
It is hard to imagine that people who witnessed history did not know at the time how important the moment was.
When you look at the past, the past will always be deterministic, since only one single observation took place.
Our minds are not quite designed to understand how the world works, but, rather, to get out of trouble rapidly and have progeny. If they were made for us to understand things, then we would have a machine in it that would run the past history as in a VCR, with a correct chronology, and it would slow us down so much that we would have trouble operating. Psychologists call this over-estimation of what one knew at the time of the event due to subsequent information the hindsight bias, the “I knew it all along” effect.
A mistake is not something to be determined after the fact, but in the light of the information until that point.
more vicious effect of such hindsight bias is that those who are very good at predicting the past will think of themselves as good at predicting the future, and feel confident about their ability to do so. This is why events like those of September 11, 2001, never teach us that we live in a world where important events are not predictable—even the Twin Towers’ collapse appears to have been predictable then. My
Mathematicians of probability give that a fancy name: ergodicity. It means, roughly, that (under certain conditions) very long sample paths would end up resembling each other.
Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties.
The defender of the dogmas of modern finance and efficient markets started a fund that took advantage of market inefficiencies!
(If you think that you can control your emotions, think that some people also believe that they can control their heartbeat or hair growth.)
I suggest reading the hilarious Fashionable Nonsense by Alan Sokal for an illustration of such practice (I was laughing so loudly and so frequently while reading it on a plane that other passengers kept whispering things about me).
For instance, what struck me while reading Richard Dawkins’ Selfish Gene is that, although the text does not exhibit a single equation, it seems as if it were translated from the language of mathematics. Yet it is artistic prose.
Asymmetric odds means that probabilities are not 50% for each event, but that the probability on one side is higher than the probability on the other.
Asymmetric outcomes mean that the payoffs are not equal.
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.
It is said that people generally remember the time and geographic condition where they were swept with a governing idea.
Aside from the misperception of one’s performance, there is a social treadmill effect: You get rich, move to rich neighborhoods, then become poor again.
Remember that nobody accepts randomness in his own success, only his failure.
The dynamics of such fame follow a rotating helix, which may have started at the audition, as the selection could have been caused by some silly detail that fitted the mood of the examiner on that day.
When viewing two events A and B, it is hard not to assume that A causes B, B causes A, or both cause each other. Our bias is immediately to establish a causal link.
Say you own a painting you bought for $20,000, and owing to rosy conditions in the art market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate—only an emotional investment. Many people get married to their ideas all the way to the grave. Beliefs are said to be path dependent if the sequence of ideas is such that the first one dominates.
There are reasons to believe that, for evolutionary purposes, we may be programmed to build a loyalty to ideas in which we have invested time.
Does investing time in something necessarily mean we have to stick to it
I conclude with the following saddening remark about scientists in the soft sciences. People confuse science and scientists. Science is great, but individual scientists are dangerous. They are human; they are marred by the biases humans have. Perhaps even more. For most scientists are hard-headed, otherwise they would not derive the patience and energy to perform the Herculean tasks asked of them, like spending eighteen hours a day perfecting their doctoral thesis.
A scientist may be forced to act like a cheap defense lawyer rather than a pure seeker of the truth. A doctoral thesis is “defended” by the applicant; it would be a rare situation to see the student change his mind upon being supplied with a convincing argument. But science is better than scientists.
Recall that epic heroes were judged by their actions, not by the results.
No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word.
