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

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

by Nassim Nicholas Taleb, Sean Pratt (Read by)
3.8 39

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Overview

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb, Sean Pratt

This book is about luck -- or more precisely how we perceive and deal with luck in business and life. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill -- the world of trading -- Fooled by Randomness is a captivating insight into one of the least understood factors in all our lives. Writing in an entertaining and narrative style, the author succeeds in tackling and explaining three major intellectual issues: the problem of induction, the survivorship biases, and our genetic unfitness to the modern world.

The book is populated with an array of characters, some of whom have grasped, in their own way, the significance of chance: Yogi Berra, the baseball legend; Karl Popper, the philosopher of knowledge; Solon, the Ancient World's wisest man; the modern financier George Soros; and the Greek voyager Ulysses. In addition we meet the fictional Nero, who seems to understand the role of randomness in his trading life, but who also falls victim to his own superstitious foolishness.

But the most recognizable character of all remains unnamed -- the lucky fool in the right place at the right time. The embodiment of the "Survival of the Least Fit." Such individuals attract devoted followers who believe in their guru's insights and methods. But no one can replicate what is obtained through chance. A monkey banging on a keyboard may eventually produce the Iliad, but would you sign him to write the sequel? Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover non-existent messages in random events? It may be impossible to guard ourselves against the vagaries of the Goddess Fortuna, but after reading Fooled by Randomness we can be a little better prepared.

Product Details

ISBN-13: 9781596592018
Publisher: Gildan Audio
Publication date: 09/02/2008
Series: Incerto Series
Edition description: Unabridged
Sales rank: 908,973
Product dimensions: 6.04(w) x 5.14(h) x 1.29(d)

About the Author

Nassim Nicholas Taleb is an essayist principally concerned with the problems of uncertainty and knowledge. Taleb's interests lie at the intersection of philosophy, mathematics, finance, literature, and cognitive science but he has stayed extremely close the ground thanks to an uninterrupted two-decade career as a mathematical trader. Specializing in the risks of unpredicted rare events (black swans"), he held senior trading positions in New York and London before founding Empirica LLC, a trading firm and risk research laboratory. Taleb is a fellow at the Courant Institute of Mathematical Science of New York University where he has been teaching a class on the failure of models since 1999. He has an MBA from the Wharton School and a Ph.D. from The University of Paris Dauphine.

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Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets 3.8 out of 5 based on 0 ratings. 39 reviews.
Guest More than 1 year ago
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?
Guest More than 1 year ago
The author has his own ax to grind. His personal view is that markets are random. The more accepted view is that markets are chaotic. The difference, while subtle, is rewarding, both mathematically and financially. Taleb manages one or more funds which, as I understand it, are based on his view of the market. I have heard assorted reports as to the success of said funds. The short version is that his avowed approach requires huge amounts of patience and very large capitalization. That said, mathematically, his approach is sensible... in the long term. But as Keyens said, in the long run, we are all dead.
Lenny3 More than 1 year ago
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
In_The_Shadows More than 1 year ago
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.
Guest More than 1 year ago
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.
Guest More than 1 year ago
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.
Anonymous More than 1 year ago
This is a great book
Anonymous More than 1 year ago
Great book
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Anonymous More than 1 year ago
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.
Anonymous More than 1 year ago
aragornTX More than 1 year ago
I thought the book kind of rambled with a lot of anectdotal stories. He seems quite conceited in a humble sort of way and it grates on you after a while. There were a lot of interesting examples that explain most people's misunderstanding of probability. I think the way he explains the bigger payoffs/risks of big chance strategies vs the smaller payoffs/less risks, more pedestrian, yet more predictable strategies is the key point of the book (i.e. one out thousands of actors is successful and becomes a multimillionaire, the rest are poor waiters, but almost everyone that goes to school to be a dentist will make a respectable, reliable income. The total payoff for dentists if better than the total payoff for actors and more equitably distributed.) Frankly, by the end of the book, I could hardly wait for it to be over.
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