Sunday, October 05, 2008

Fooled by Randomness


Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb
Author's Website
Publisher: Penguin
Published: 2007
ISBN-13: 9780141031484
368 pages



“It is a personal essay primarily discussing its author’s thoughts, struggles, and observations connected to the practice of risk taking […]. It is written for fun and it aims to be read (principally) for, and with, pleasure.” This is lifted directly from the preface (p. vii). I revisited this book again in August this year for a book discussion with my office colleague, Eugene Foong. He was preparing a presentation for his Masters degree based on the same book. One day during lunch, he asked if I have read Nassim Taleb’s Fooled by Randomness and I answered yes. That’s how the book discussion came about.

It is interesting to note Taleb’s observations on how chance plays a part in success. Luck is democratic and hits everyone regardless of original skills, he says. Take the example of millionaires. “That all millionaires were persistent, hardworking people does not make persistent hard workers become millionaires: Plenty of unsuccessful entrepreneurs were persistent, hardworking people.” (p. xiv)

The book is written in a conversational manner and the author tries his best to make the confusing subject of randomness less confusing. Broken into three parts, the book deals with skewness, asymmetry and induction in part one; survivorship and biases in part two; and in part three, he presents the human aspects of dealing with uncertainty.

Quoting from Chapter One of the book from the example of a guy named Nero Tulip, it essentially sums up what the entire book is about in its 300 over pages: “Nero believes that risk-conscious hard work and discipline can lead someone to achieve a comfortable life with a very high probability. Beyond that, it is all randomness: either by taking enormous (and unconscious) risks, or by being extraordinarily lucky. Mild success can be explainable by skills and labor. Wild success is attributable to variance.” The book is lengthy because the author provides many examples, and it also elaborates on biases in which there are three: (a) survivorship biases arising from the fact that we see only winners and get a distorted view of the odds, (b) the fact that luck is most frequently the reason for extreme success, and (c) the biological of our inability to understand probability.

It is indeed an interesting read but not for everybody. If you want a thought-provoking read, you can give this book a go; Fortune says of the book as “One of the smartest books of all time.”

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Eugene said I could publish in my blog the slides he and his team prepared since I helped him by providing input in the book discussion. I have decided to use it in this book review. Thanks, Eugene!
Fooled By Randomness

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I hope you have enjoyed both the review and the slideshow!