Greatest Hits

Fooled By Randomness – Nassim Nicholas Taleb

WHAT THE BOOK SAYS

• Everyone wants to succeed, but what causes some people to be more successful than others? Is it really down to skill and strategy, or something altogether more unpredictable?
• The book is all about how we perceive 'luck' in our personal and professional lives. We often hear that an entrepreneur has 'vision' or that a trader is 'talented' but all too often their performance is down to chance, not skill.
• This is because we fail to understand probability and so continue to believe events are non-random, finding reasons where none exist.
• Black Swans are unexpected random events. This is based on John Stuart Mill's observation that no amount of observations of white swans can prove that all swans are white – the sighting of a single black swan can disprove it. Seeing George Bush alive many times does not prove that he is immortal.
• Many rich people are just lucky idiots.

 

WHAT'S GOOD ABOUT IT

• This is not a text book, but there are many thought-provoking messages in it:
• Journalists are bred to not understand randomness – they must have a reason
• The noise in markets usually disguises the signal
• Because a rich person can lose it all, they cannot be said to be truly happy until their life is finished (this was observed by the Greek legislator Solon, when unimpressed with Croesus, supposedly the richest person ever)
• The Monte Carlo Simulator is a computer programme that simulates random occurrences, rather like extended Russian roulette. Examining its behaviour makes a nonsense of most so-called patterns in market analysis.
• Those predicting events usually don't know what they are talking about, or what can sensibly be deduced from the data they have.
• There is usually no link between the most recent event and the one about to happen – this is crucial when analysing trends.

 

WHAT YOU HAVE TO WATCH

• The book is quite long and highly technical – it is not for the faint-hearted, despite having sold huge numbers and being translated into 18 languages.
• The author quite enjoys being obscure or obtuse.

 

The Black Swan - Nassim Nicholas Taleb

 

WHAT THE BOOK SAYS

• Everything is essentially random. Black Swans (unpredictable events) disprove everything we think we know from time to time. Everyone assumed all swans were white until overseas travel revealed black ones – thousands of instances of one thing does not disprove the possibility of another. A turkey is fed for 1,000 days before Christmas, assuming all is fine – then it is killed. The highly expected not happening is also a Black Swan.
• Their impact is huge, they are near impossible to predict, and yet afterwards we always try to rationalise them – an essentially pointless exercise.
• Ignore the experts, stop trying to predict everything and embrace uncertainty.
• It is easier to predict how an ice cube would melt into a puddle than guess the shape of an ice cube by looking at a puddle.

 

WHAT’S GOOD ABOUT IT

• Umberto Eco’s Antilibrary: he has 30,000 books. It’s what you haven’t read, what you do not know, that makes the difference.
• Mediocristan is a land where everything is averaged and so unhelpful to the point of meaninglessness. Extremistan is where all the learning is.
• We can learn from some important lessons:

We focus on small parts of what we know and use them to project what we don't (wrongly)

We use narrative fallacy (stories) to fool ourselves with reasons that aren’t there

We behave as if Black Swans don’t exist – they clearly do

 

What we see is not necessarily all there is

 

Variability matters: “Don’t cross a river if it is four feet deep on average.”

 

 

WHAT YOU HAVE TO WATCH

• The book is quite long and highly technical – it is not for the faint-hearted.
• The author often veers off into anecdote.
• He quite enjoys being obscure or obtuse.
• You cannot approach this book like a dip-in textbook.