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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

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Most Helpful Favorable Review

1 out of 1 people found this review helpful.

A book review while 'standing on one leg'

What are some of the book¿s good points ? It communicates our deep flaws as decision-makers in a thoughtful and humane manner. It amusingly discusses `Risk Managers¿ as being clueless concerning randomness. The story of `Solon¿ is priceless in that it commun...
What are some of the book¿s good points ? It communicates our deep flaws as decision-makers in a thoughtful and humane manner. It amusingly discusses `Risk Managers¿ as being clueless concerning randomness. The story of `Solon¿ is priceless in that it communicates true foundations for people who want to be risk managers regardless of its proximity to their business cards. Wittgenstein¿s Ruler story will change the way you think about econometrics, if you ever thought about it at all. It succinctly communicates the essence of why Karl Popper is worth understanding ¿. and does the same for simulation using the Russian roulette story. It inspired at least one entrepreneur.

posted by Anonymous on December 17, 2005

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Most Helpful Critical Review

7 out of 7 people found this review helpful.

Pathetic

We are experiencing a dramatic shift in America where individuals are assuming greater risks. The old defined retirement benefits plans are being replaced by defined contribution plans (i.e. 401k plans). Under these contribution plans, it is the employee who makes the...
We are experiencing a dramatic shift in America where individuals are assuming greater risks. The old defined retirement benefits plans are being replaced by defined contribution plans (i.e. 401k plans). Under these contribution plans, it is the employee who makes the investments decisions and faces a loss in retirement wealth when these investments sour. Job security is not what it once was. Our future well being is becoming increasingly dependent on random events. This makes the topic in Taleb¿s ¿Fooled by Randomness¿ very timely. In order to make good decisions, we need to be both financially and statistically literate. Taleb¿s book gets us off to a good start. All too often we mistake random events with deterministic ones particularly when judging a person¿s past performance. If this book is worth buying it is because of the Table P.1 that summarizes how we can make faulty judgments by ¿being fooled by randomness.¿ After this, it deteriorates. He does not explain important concepts correctly, and he tries to give the impression that nobody accounts for randomness. He criticizes mathematicians for ignoring randomness, even though there is an entire field in mathematics devoted to understanding randomness. Taleb is confused. Risk adverse individuals attempt to avoid the potential ill effects of randomness however, this does not mean that they avoid the understanding of randomness. Randomness can be synonymous with vulnerability. The book is filled with contradictions where he says one thing and a few pages later reverses himself. For a PhD he has an amazingly poor grasp of probability theory. No wonder he does not like mathematicians, he does not understand the discipline. Although he claims that financial markets are unpredictable, he claims to have a trading strategy that guarantees him positive profits. Go figure. No where in his book does he discuss the concept of conditional expectation. His fictional characters are not convincing. The ¿risk averse¿ Nero is supposedly buying Treasuries when he could get a higher and equally safe after tax return with buying municipal bonds. The worst part of this book is the moral implications. All of life is uncontrolled randomness. Our decisions and our efforts do not matter and there is no role for personal responsibility. People who do try to explain randomness or who try to take responsibility are personally attacked. After writing this book, Taleb appeared on CNBC TV. He told the announcer that if a person comes into your office and uses the word ¿standard deviation¿, you should throw him out. The announcer asked Taleb why this should be done. And Taleb responded, ¿Because everything is not normally distributed.¿ Do I need to say anything more?

posted by Anonymous on April 8, 2006

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  • Posted July 26, 2009

    more from this reviewer

    Great Book

    What a great book! For all of us hard decision makers out there, this book really helps the psyche and will to "just do it." If you are looking for a book that will help you lose control and gain mental health, this is a good one.

    http://www.netvibes.com/lenny3

    1 out of 1 people found this review helpful.

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  • Posted July 20, 2009

    Bring Sanity to Your Portfolio

    I would recommend those books for investors, who are above the beginning stage. This books emphasizes the role of planning for the unpredictable in your portfolio. This books could have more examples of the historical application of his view. Also, the author does come off conceited throughout the book, even though he admits that he does have his flaws later.

    1 out of 1 people found this review helpful.

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  • Anonymous

    Posted May 30, 2007

    Insightful

    If you can get past the first half of the book, where the author comes off as a very conceited and know-it-all type person, the book is well worth the time and money. I am an avid trader in stocks, currencies and futures, as well as an enthusiastic poker player. It addresses a lot of crucial ideas that people (most notably investors) today rarely have an understanding of, especially when it comes to probability.

    1 out of 1 people found this review helpful.

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  • Anonymous

    Posted December 17, 2005

    A book review while 'standing on one leg'

    What are some of the book¿s good points ? It communicates our deep flaws as decision-makers in a thoughtful and humane manner. It amusingly discusses `Risk Managers¿ as being clueless concerning randomness. The story of `Solon¿ is priceless in that it communicates true foundations for people who want to be risk managers regardless of its proximity to their business cards. Wittgenstein¿s Ruler story will change the way you think about econometrics, if you ever thought about it at all. It succinctly communicates the essence of why Karl Popper is worth understanding ¿. and does the same for simulation using the Russian roulette story. It inspired at least one entrepreneur.

    1 out of 1 people found this review helpful.

    Was this review helpful? Yes  No   Report this review
  • Anonymous

    Posted September 1, 2013

    Great

    Great book

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  • Anonymous

    Posted February 17, 2012

    Excellent book about markets and about life

    Nassim Taleb brings out some of the most interesting and insightful ideas and observations that I've seen in a long time. If you read this book and "The Black Swan" it will change the way you look at the world around you and help you protect yourself from the vagaries of our unpredictable markets. It sheds light on why unpredictable events are so unpredictable, but also on why, at the same time, we are addicted to predictions and explanations, even though they are useless and impossible.

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  • Anonymous

    Posted December 2, 2009

    I Also Recommend:

    A Real Wow Book

    This may be the best self improvement book I have ever read -- even though the book is not marketed as such. It's an eye opening experience and one I learned a lot from. Just in my day to day life there is a tendency to rationalize bad decisions and attribute luck to my own skill. Getting a grip on what I can control and what is random can only help me make better quality decisions in all aspects of my life. Essential reading for anyone who want to understand how to compete more effectively.

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  • Anonymous

    Posted January 14, 2004

    Fantastic

    Taleb doesn't put as much math in the book as I'd like, or expected, but the point he gets across is awesome. Seemingly anecdotal, at times, he incorporates lots of stories which range from Roman rulers to traders on the exchange floor. Absolutely excellent.

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  • Anonymous

    Posted October 27, 2001

    Charming

    The narrator may come across as having a big ego, but he is absolutely charming. He lulls you into his world with a totally different logic. He sees randomness where you suspect none and convinces you.

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  • Anonymous

    Posted September 19, 2001

    Managing Unpredictable Variations in Order to Prosper!

    Every person who is interested in investing should read this book! In investing, few can tell the difference between being lucky and smart. Being successful in the short term can come from either source. If it is coming from unrecognized sources of luck, however, the behavior that the investor associates with success can sink the ship. The cautionary tale of Long-Term Capital Management is cited in the book as an example of this point. ¿If you¿re so rich, why aren¿t you smart?¿ is the wonderful reversal here on the old saw. I see this effect all the time in my consulting practice with helping companies understand how their decisions affect their stock price. A large percentage of people feel that they know all the answers when their stock price is rising. They keep doing the same things when the stocks are falling. Few survive to still have top jobs when the cycle shifts again. Then a new group of self-confident people take over who often don¿t know any more than those who preceded them. It¿s just that their track records look better. Fooled by Randomness will help make you more knowledgeably humble about what you can expect to accomplish with investments. Not only do fewer than one percent outperform the market averages over long time periods, the ones who do are probably often being aided by luck as well. ¿Get thee to the index funds as soon as possible¿ is the message that most should take away from this book. Better yet, buy them when multiples are low! The book¿s fundamental point is that there is tremendous volatility in any investment. Ignore that volatility to your peril. At the same time, you should be cautious about how well you understand the volatility. Stocks at their lows can still go to zero. There are all kinds of events that can happen, that have not done so yet. When they do, throw out all the old rules of investing. The terrorist attacks on the United States last week are probably an example of this. So each investment must be made as though you could be totally wrong. This means that you have to manage your risk exposure to events you don¿t even know how to expect. I loved his example of the joint probabilities of having a rare disease if you get a positive result on a test for that disease. Even most doctors apparently don¿t know how to evaluate that one. If even well educated people cannot quantify two known risks occurring simultaneously in their own field, how can investors be expected to make good decisions? Dr. Taleb has some very good advice for how to handle the psychology of being able to do this. He upholds the Stoic ideal -- ¿the attempt by man to get even with probability¿ which encourages ¿wisdom, upright dealing, and courage.¿ This means not chasing the latest investment fad or fashion, not looking at your investments very often, and being open to both sides of any idea (it could go wrong as well as right --what are the consequences of both?). I especially liked his idea of watching CNBC with the sound off so that the ¿experts¿ seem humorous and you are less likely to hear and follow their advice. Even more poignant was his advice not to live on Park Avenue where living with all of the arrogant, temporarily lucky can make you feel small. Instead, live somewhere that the results of your cautious approach will cause you to be the envy of all. Dr. Taleb impressed me with his willingness to tell stories on himself about how quickly he can become superstitious when things are going well, take on excess risks, and start looking too short term. After all, we are only human! The importance of this book can only be appreciated if you go back and think about your biggest investing successes. How much was luck versus skill? A good way to test is to see if the same approach has continued to work for you whenever you use it. Another good test is to see how often it would have backfired in the past. In my research on good decision mak

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