Fooled by Randomness

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
Author Nassim Nicholas Taleb
Country United States
Language English
Series Incerto
Subject Human knowledge, Statistics, Philosophy, Finance
Publisher Random House
Publication date
 2001
Media type Print, e-book
Pages 316
ISBN 0-8129-7521-9
OCLC 60349198
123/.3 22
LC Class HG4521 .T285 2005
Followed by The Black Swan

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets is a book by Nassim Nicholas Taleb that deals with the fallibility of human knowledge. An updated edition was released in the late 2000s with more material than the 2001 edition. The book is the first part of Taleb's multi-volume philosophical essay on uncertainty, titled the Incerto, which also includes The Black Swan (2007–2010), The Bed of Procrustes (2010–2016), Antifragile (2012), and Skin in the Game (2018).

Thesis

Taleb sets forth the idea that modern humans are often unaware of the existence of randomness. They tend to explain random outcomes as non-random.

Human beings:

  1. overestimate causality, e.g., they see elephants in the clouds instead of understanding that they are in fact randomly shaped clouds that appear to our eyes as elephants (or something else);
  2. tend to view the world as more explainable than it really is. So they look for explanations even when there are none.

Other misperceptions of randomness that are discussed include:

  • Survivorship bias. We see the winners and try to learn from them, while forgetting the huge number of losers.
  • Skewed distributions. Many real life phenomena are not 50:50 bets like tossing a coin, but have various unusual and counter-intuitive distributions. An example of this is a 99:1 bet in which you almost always win, but when you lose, you lose all your savings. People can easily be fooled by statements like "I won this bet 50 times". According to Taleb: "Option sellers, it is said, eat like chickens and go to the bathroom like elephants", which is to say, option sellers may earn a steady small income from selling the options, but when a disaster happens they lose a fortune.

Reaction

The book was selected by Fortune as one of the 75 "Smartest Books of All Time."[1] U.S.A Today recounted that many criticisms raised in this book of the financial industry turned out to be justified.[2] Forbes admitted to the book being playful, self-effacing and at times insufferably arrogant, but always thought provoking.[3] The Wall Street Journal (one of the publications that Taleb pokes fun at in his book) called Universa Investments' buys in October 2008 a "Black Swan gain" (alluding to the Black Swans mentioned in the book).[4] The New Yorker (one of the publications which receives more favourable comments in this book) said that the book was to conventional Wall Street wisdom what Martin Luther’s ninety-nine [sic] theses were to the Catholic Church.[5]

Editions

  • In 2001, TEXERE published the first edition of the book. ( ISBN 1-58799-071-7, London : Texere, 2001)
  • In 2004, TEXERE published a revamped second edition.
  • In 2005, Random House published a softback edition with more changes. ( ISBN 1-58799-190-X, New York : Random house, 2005)
  • In 2005, a French version appeared, with many unique changes.
  • The book has been translated into 20 languages,[6] and is reported to have sold over half a million copies.
  • Further editions have been published by Penguin (softback, May 2007) and Random House (hardback, October 2008.)

See also

References

  1. ↑ Useem, Jerry (21 March 2005). "The Smartest Books We Know". Fortune.
  2. ↑ Mouton, Andre (19 August 2013). "Does big data have us 'fooled by randomness'?". U.S.A Today. Retrieved 28 August 2013.
  3. ↑ Sizemore, Charles (23 January 2013). "Nassim Taleb's 'Antifragile' Celebrates Randomness In People, Markets". Forbes.com. Retrieved 28 August 2013.
  4. ↑ Patterson, Scott (3 November 2008). "October Pain was Black Swan Gain" (PDF). Wall Street Journal. Retrieved 28 August 2013.
  5. ↑ "Book review : Fooled by randomness". The New Yorker. Retrieved 28 August 2013.
  6. ↑ fooled by randomness
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