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

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The Essence

Nassim Nicholas Taleb aims to change our preconceived notions of what chance is and how it is more widespread in each of our lives then we care to realize. We are predisposed to be fooled by the randomness of events, and our emotional coloring of events is what the basis of most, if not all, our decision are made. Mathematical models and empirically identified psychological bias are evidence for our innate disregard for the uncertainty that surrounds our every decision. Knowledge of the unavoidable force that is randomness will improve our abilities to identify what breeds success and what is just plain old luck. Fooled by Randomness defends science and attacks the scientist— mostly in economists—who use snail-oil to justify claims used to predict future outcomes.

Fooled by Randomness Summary Journal Entry:

This is my book summary of Fooled by Randomness by Nassim Nicholas Taleb. My notes are a reflection of the journal write up above. Written informally, the notes contain a mesh of quotes and my own thoughts on the book. The Journal write up also includes important messages and crucial passages from the book.

• The observation of numerous misfortunes that attend all condition forbids us to grow insolent upon our present enjoyments or to admire a man’s happiness that may yet, in the course of time, suffer change. For uncertain future has yet to come, with all variety of future; and him only to whom the divinity has [guaranteed] continued happiness until the end we may call happy” -Solon
• A Black Swan is a rare event.
• We are not wired to understand probability
• Asymmetry in knowledge: You would assume that the more information you have the more confident you are about the outcome. However, as we acquire more information, we become no better a predictor of events; there are information thresholds and plateaus when predicting future outcomes.
• Sensationalism can divert empathy towards all the wrong causes: MEDIA
• Media’s primary purpose is to steal our time and attention and nothing better excites us then emotionally backed assertions rhetoric.
• Media is full of noise. We can drown out our exposure by avoiding news media at all cost. By selectively exposing ourselves to only information that does not attempt to blatantly play at our emotions, we become less susceptible to manipulation via sensationalism.
• Mathematics does not compute information to the extent that it is valued. We need to remember that math is only a tool to meditate and provides no absolute certainty.
• Abstraction confuses us. We are highly aversive to ensuring against things that are not obvious. Risks that capture our attention are the ones that are vivid.
• The misinterpretation of a mistake: Mistakes are NOT to be made in hindsight. Rather, what is to be considered a mistake in to be determined based on the information gathered up until the event.
• Ergodicity: over the long term, paths that may not look so similar end up reverting their long-term Meaning that under certain circumstance, long samples of information end in fairly similar conclusions.
• We are unable to learn from our own reaction to past events. We identify past experiences and emotional reactions to events but choose to ignore the clues that give us insight into changing actions for the future. For instance, understanding the type of person that pesters you but continuing to seek those type of people out.
• A theory cannot be verified (only provisionally accepted).
• “There are routes to success that are nonrandom, but few, people have the mental stamina to follow them. Those who go the extra mile are rewarded.”
• We Favor: the visible, embedded, personal, narrated, and tangible. But we scorn the abstract.
• In science, it is disastrous to avoid contradictions; nature is not as consistent as our models would assume. Nevertheless, cultural has made self-contradiction shameful. What is to come of empirical work if alternative science becomes more attractive due to its consistencies?
• Luck is most frequently the reason for extreme success.
• The emotional systems that rule our decision-making function only under models of linear causality.
• Survivorship Bias: Arise due to our inclination to notice only the winners and get a distorted view of the odds. Said another way, we are biased to undervalue the importance of randomness.
• Monkeys on a typewriter: The impossible is only the improbable. While it is not likely a monkey placed in front of a typewriter will write a word for word copy of Homer’s Odyssey, it is not impossible.
• Overconfidence rules our perceptions. We tend to overvalue their knowledge and underestimate how often they are wrong.
• “Normative economics is like religion without the aesthetics”
• Today’s probabilistic errs are breed by the mental shortcuts we use to quickly make choices. These heuristic are very dangerous if left unattended.
• “Every man believes that he is quite different.”
• The social treadmill effect that Nassim Nicholas Taleb describes is similar to the idea of the expenditure cascade effect. As we begin to move up in socioeconomic status whom we compare ourselves to also changes. So as you continue up the income bracket there will always be someone new to make you feel poor again.
• “If I am going to be harmed by randomness, it better be of the beautiful kind.”
• Sand Pile effect: Nonlinear effect resulting from a linear force exerted on an object. This is one of my favorite models to think about progress. As I put in work on anything, it may seem to naturally lead to me getting better, but as we improve the effects of our actions become blurred and hence we fear we’ve entered a rut. I learned to have faith in my systems and to trust that while effects may not be initially clear, long-term growth is inevitable as long as I am consistent.
• Wealth does not make us happy. It is only the positive change in a given person wealth that brings This is especially true for gradual increases in wealth.
• If you have to choose between hiring a financial advisor and flipping a coin, choosing the latter will save you more money no matter the outcome.
• Mathematics is merely a way of thinking and meditating in a world of randomness
• When it comes to failures and successes. Not many people are willing to accept randomness in their successes. But will chalk up every lost to a misfortune outside of their control.
• Buridan’s Donkey: given two options, to eat or to drink water first. The donkey attempts to rationalize which would be more effective to do first. Weighing the options for too long, the donkey dies of starvation and thirst. The message here is that rational thought will not make your decisions, the emotional forces driving action that excite us to act. Without it, we may sit between choices deliberating the cost and benefits until it is too late.
• The cost of missing out on the next new thing like the new iPhone or Car is far too small when compared to the harmful effects of one has to go through to get the materials. This is the same with information. The benefits of staying ‘up-to-date’ does not outweigh the cost having to expose yourself to rubbish media.
• Karl Popper: Science is not to be taken as seriously as it sounds.
  • Karl states there are only two types of theories.
    1. Theories that are known wrong as they are tested and soundly rejected.
    2. Theories that have not yet been known to be wrong not yet falsified but are exposed to be proved wrong.
• “If people were rational, then their rationality would cause them to figure our predictable patterns from the past and adapt, so that past information would be completely useless for predicting the future.” –Robert Lucas
• Be Open. We need to have a critical open mind and alter our stances with minimal shame.
• Causality is easier to commit to memory. A pattern in our brains is easier to conceptualize then some numbers.
• “There is something philosophical about investing one’s pride and ego into ‘my house/library/car/ is bigger than that of others in my category’—it is downright foolish to claim to be first in one’s category all the while sitting on a time bomb.”

Reading Recommendations

If you liked what you saw. Here are 3 titles that I recommend based on what discussed in Fooled by Randomness.

1. Success and Luck: Good Fortune and the Myth of Meritocracy by Robert Frank.

2.The Drunkard's Walk: How Randomness Rules Our Lives by Leonard Mlodinow.

3.The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb.

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