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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets Paperback – 3 May 2007
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About the Author
Nassim Nicholas Taleb spent twenty-one years as a risk taker before becoming a researcher in philosophical, mathematical, and (mostly) practical problems with probability. Although he spends most of his time as a flâneur, meditating in cafes across the planet, he is currently Distinguished Professor at New York University's Tandon School of Engineering but self-funds his own research.
His books, Antifragile, The Black Swan, The Bed of Procrustes and Fooled by Randomness (part of a multi-volume collection called Incerto, Latin for uncertainty), have been translated into thirty-seven languages. Taleb has authored more than fifty scholarly papers as backup to Incerto, ranging from international affairs and risk management to statistical physics. He refuses all awards and honours as they debase knowledge by turning it into competitive sports.
- Publisher : Penguin UK; Latest edition (3 May 2007)
- Language : English
- Paperback : 368 pages
- ISBN-10 : 0141031484
- ISBN-13 : 978-0141031484
- Item Weight : 269 g
- Dimensions : 22 x 15 x 2.5 cm
- Country of Origin : United Kingdom
- Best Sellers Rank: #1,627 in Books (See Top 100 in Books)
- Customer Reviews:
About the author
Reviewed in India on 2 November 2022
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Top reviews from India
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In another instance, Nassim criticises an interviewer for pointing out to an expert that his ideas if followed would have caused a loss. Nassim doesn't explain why this objection is invalid.
On the plus side, there are some interesting ideas here:
- We're good at understanding even bets, where there's a 50% chance in your favor, not skewed bets, where the chance is more on one side.
- A 20% chance of making 1 crore is not the same as a 10% chance of making 2 crores, though both have the same expected value of 20 lac. Expected value is not the only factor in analysing bets.
- The human mind is poor at understanding probabilistic thinking, because it's counter-intuitive.
- When Nassim was asked on one instance whether he thinks the market will go up or down, he said that it's likely to go up but he bet that it went down. Why? Because if it goes up, it goes up only a little, but if it goes down, it's expected to go down a lot, so the expected value is negative.
- The more often you check your portfolio, the more likely you'll find dips, which will make you feel bad. A negative event isn't counter-balanced by a positive event — it requires roughly two positive events to counter-balance it. So Nassim, aware of his own irrational mind, checks his portfolio rarely. And so should we.
- Randomness plays a big part in outcomes, and most people take credit for good luck but blame bad luck on things beyond their control. Plus there's so much ego involved.
- A family earning half a million dollars a year and staying in fashionable Park Avenue in New York, where they're the poorest in their apartment building, will be happier if they move to a middle-class area, where people will look up to, not down at, them.
- A person who repeatedly takes bets and is proven right for a decade can still be wrong, and gives us the example of a trader who was right for two decades, and then went bankrupt. If you bet that rare things won't happen, it may take a decade or two for luck to catch up with you.
- Everyone assumes rare things won't happen, while Nassim bets that they will. Nassim loses money every day for years, and finally earns a lot to make up for all the losses, though it's emotionally draining to see money go out every day. Nassim knows his worst-case scenario, while others don't.
- Wall St banks have bad incentives and will never behave properly. Bad behavior is ignored as long as it produces a profit.
- "Stochastic" means a process consisting of a sequence of random events. Not one event.
- Monte Carlo techniques are computer programs that simulate thousands of scenarios, all random, and give you a conclusion like: 20% of the time, you go bankrupt. 30% of the time, you make a million dollars. The rest of the time, you earn a modest return of 10-20% on your investment. This is a much better way of analysing things than a single number, like: what is the probability that this investment technique produces a 15% profit?
- Monte Carlo techniques are the only option when the equations to model things are too complex. Monte Carlo is brute force, and works.
- Survivorship bias means that the average fund manager has a high return because the rest are out of business. If you count them, the average return is low.
- Nassim is an intellectual and prefers thinking to working.
For me personally, it has helped in capital markets for understanding the probability better because once you know the depth of something you start to contemplate other variables with a clear head.
Reviewed in India 🇮🇳 on 2 November 2022
Taleb is known as an iconoclast and it becomes pretty clear why, after reading this. Everything he suggests is driven by logic and reason. He makes some stunning claims and explains them brilliantly. His thought process on the current brand of journalism is absolutely true. He ridicules people mercilessly and is also accepting of the fact that he himself is only a pawn of his emotions.
Finally, I would say that this book must be read by everyone who wants to delve deep on the affects of uncertainty and randomness in our daily life. Taleb seems to the kind of writer whom you'll either respect and admire a lot or hate to your bones, I am glad that I find myself in the former category.
Top reviews from other countries
Avoid this empty piece of fluff and go read "thinking fast and slow".
This was my first Nassim Taleb book I've read, so I can't compare to his two main books Anti-fragile & The Black Swan, although I will be reading those next.
"The Black Swan" taught me about something I sort of intuitively knew about, but couldn't quite articulate, and doubted myself when I tried: the importance of very unlikely, but very costly risks ("'black swan' events"). But this earlier work seems a better place to start. While Taleb writes well, it's not an easy read. He keeps saying that people misrepresent him for a reason: it's very easy to do. The digested NN Taleb is that success is *partly* down to luck (and the "*partly*" gets omitted by a lot of people). This isn't the place to summarise why he thinks that. Read the damn book.
Coda: this book covered a lot of material that was in my undergraduate degree and quite a lot that should have been. If you're an undergraduate in *any* of the sciences, this book will at the least, do you no harm, and may come in useful at some unexpected moment. If you've got a degree, you should have read this book, so if you haven't, make good that omission now. If you have the sense not to have a degree, well, this book is for you too.
Is it only for numberphiles? No, it probably is too basic for the ‘initiated’; even though they still might enjoy the examples and life stories.
Everything is well explained in a simple manner; probably also because Taleb is not as brilliant as he thinks.
The outcome is a practical theory, exciting, and filled with anecdotes of an unusual character.
Lets put it this way, this book makes a dry theory entertaining and accessible to everyone. That should be applauded.