Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Incerto, #1)

by Nassim Nicholas Taleb

Let me make it clear here: Of course chance favors the prepared! Hard work, showing up on time, wearing a clean (preferably white) shirt, using deodorant, and some such conventional things contribute to success—they are certainly necessary but may be insufficient as they do not cause success. The same applies to the conventional values of persistence, doggedness and perseverance: necessary, very necessary. One needs to go out and buy a lottery ticket in order to win. Does it mean that the work involved in the trip to the store caused the winning? Of course skills count, but they do count less in highly random environments than they do in dentistry.

the word random should not be mistaken for equiprobable (i.e., having the same probability).

A mistake is not something to be determined after the fact, but in the light of the information until that point.

Incidentally, having experienced the ravages of war, I find undignified impoverishment far harsher than physical danger (somehow dying in full dignity appears to me far preferable to living a janitorial life, which is one of the reasons I dislike financial risks far more than physical ones). I am certain that Croesus worried more about the loss of his Kingdom than the perils to his life.

The defender of the dogmas of modern finance and efficient markets started a fund that took advantage of market inefficiencies! It is as if the Pope converted to Islam.

Following the incident, John regarded himself “ruined”; yet his net worth is still close to $1 million, which could be the envy of more than 99.9% of the inhabitants of our planet. Yet there is a difference between a wealth level reached from above and a wealth reached from below. The road from $16 million to $1 million is not as pleasant as the one from 0 to $1 million. In addition, John is full of shame; he still worries about running into old friends on the street.

“The Median Is Not the Message.”

Many scientists in the physical world are also subject to such foolishness, misreading statistics. One flagrant example is in the global-warming debate. Many scientists failed to notice it in its early stages as they removed from their sample the spikes in temperature, under the belief that these were not likely to recur.

These scientists initially ignored the fact that these spikes, although rare, had the effect of adding disproportionately to the cumulative melting of the ice cap.