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TECH TALK: Fooled by Randomness: The Book

May 8th, 2006 · 3 Comments

I saw Nassim Talebs Fooled by Randomness at a Strand Book Shop exhibition recently and picked it up. I remembered Nassim Taleb from his writing on Black Swans, which I had referenced in a Tech Talk almost two years ago. I read the book en route in the car from Surat to Mumbai. I have to agree with the statement by Fortune (on the book cover) that this is one of the smartest books of all time.

The sub-title of the book is The Hidden Role of Chance in the Markets and in Life. Here is an excerpt from the book description:

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.

This is what Amazons review states: Nassim Nicholas Taleb, a professional trader and mathematics professor, examines what randomness means in business and in life and why human beings are so prone to mistake dumb luck for consummate skill. This eccentric and highly personal exploration of the nature of randomness meanders from the court of Croesus and trading rooms in New York and London to Russian roulette, Monte Carlo engines, and the philosophy of Karl Popper. Part of what makes this book so good is Taleb’s ability to make seemingly arcane mathematical concepts (at least to this reviewer) entirely relevant in evaluating and understanding everything from the stock market to the success of those millionaires cited in the aforementioned bestsellers. Here’s an articulate, wise, and humorous meditation on the nature of success and failure that anyone who wants a little more of the former would do well to consider.

Tomorrow: The Person

Tags: Tech Talk

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