Book: Fooled by Randomness by Nassim Nicholas Taleb

I picked up Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, by Nassim Nicholas Taleb, on the recommendation of a mathematician (Vipul Naik, my son). I was expecting a heavy treatise on economics and statistics. It was however a very engrossing book written in a lucid and conversational style, with historical events and everyday situations used freely to provide insights.

Here is the book summary/ key insights (that I picked up from the book):

1)      Human beings are wired in a way that they are unable to intuitively handle randomness and chance.

2)      We are adept at explaining everything through a cause-effect; because we just can’t handle uncertainty. And a statistical correlation does not necessarily mean one causes the other.

3)      Ignoring rare events (outliers) in building prediction models is fooling ourselves – rare events are a part of the process and environment, and their impact is rarely understood or considered by people.

4)      We try to explain extraordinary successes as the result of brilliant strategy or business model or formula or leadership skills or intelligence; while it is often just dumb luck. This is more so of domains like stock trading, marketing, and running a business. We try to learn from and emulate the “winners”, without much success ourselves (by trying to implement the so-called strategies of successful people). Basically, according to the book, many of the winners are just lucky fools :-).

5)      Nice symmetrical probability distributions cannot be expected of any human endeavor (symmetrical distributions may be used to understand controlled situations like gambling – toss of a coin, or rolling of a dice). When we simplify probability distributions and approximate them to neat curves, the results that we get are unreliable.

6)      Though Monte Carlo simulations are looked down upon (“that is cheating, it is not statistics!”) by purists, it is still be the best way to model complex, real situations and understand the potential randomness of the outcomes, and can be used for informed decision making.

7)      Past performance cannot be blindly used to predict future performance. Hence, we should not overestimate the accuracy of our beliefs just because we have been successful in the past, we should reexamine our beliefs based on logic, and always have a backup plan.

One of issues with the book is that it lacks structure and tends to jump from topic to topic. The tone is also snobbish and contemptuous at places, and it may make some people (who are secretly think that their success may be attributable to luck :-)) annoyed or even angry.

The author Nassim Nicholas Taleb is Distinguished Professor of Risk Engineering at New York University’s Polytechnic Institute. He has been a mathematical trader, essayist, philosopher, and researcher. He specializes in understanding uncertainty, luck, probability, knowledge, and decision making. Taleb has been described as a dissident thinker, maverick, irreverent, iconoclastic, and unconventional.

Another book by Taleb in a similar vein is The Black Swan – this is an earlier book, and again very interesting to read. Taleb has also authored AntiFragile, The Bed of Procrustes and Dynamic Hedging.

I recommend this book very highly for anyone involved in high maturity implementation of various process models and frameworks.

For people who are looking for quick-fix templates and control chart macros, this book is not for you (as if high maturity practices can be implemented using quick-fix solutions :-).

Here are some details of the book, in case you want to get your hands on it:

Fooled By Randomness Book Cover

 

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

Author: Nassim Nicholas Taleb

Publishing Date: First Version Around 2001

Publisher: Random House/ Penguin

Available at: Amazon.om, Amazon.in.

Available as eBook in Amazon Kindle.

Please feel free to share your views, experiences or queries, using the “comments” feature available at the top of this article/ post.

Also, please add other insights that you may have got from the book, using the “comments” feature available at the top of this article/ post.

Author: Rajesh Naik

I'm Rajesh Naik, and this is my personal website If you are interested in contacting me, I am also available on LinkedIn and I will be glad to accept your invite.

21 thoughts on “Book: Fooled by Randomness by Nassim Nicholas Taleb”

  1. Huh…! I’m a number lover and this sounds awesome…! Even if this goes against staunch beliefs and hits at the very bottom of our lifeline (selling ‘systems’), still is very appealing and charming…! Somewhere between ‘Freakonomics’ and ‘Fermat’s Last Theorem’…!

  2. Excellent summarization Rajesh !

    This book will be really thought provoking for all those involved in implementing high-maturity. I also suggest all client sponsors and senior management read this book prior to maiking the decision to implement high maturity.

  3. Hi Rajesh,
    Excellent summarization. I agree, it is a fight between Randomness and Orderly and we are mere tools/actors in their hands as they wage their fight!

    Regards,
    Sesh

  4. Nice Summary….Have both of these books….read few pages and fell asleep….multiple instances…

    Still optimistic to read it on a some Saturday morning….

  5. Very well summarized, thanks Rajesh…..Very insightul and thanks for sharing!

    Regards,
    Anantha

  7. Hi Rajesh,
    Happy 2013, hope you are doing well. I got this book from the library and returned w/o reading. Now that you have posted this fine review/executive summary, I don’t have to bother… :-)))

    1. Hi Geatesh,

      A very happy new year to you too! The book has more things than what I have reviewed. The book also presents these in a more interesting way!

      Rajesh

  8. Hi Rajesh…,

    Thanks for such a great encapsulation..!

    For flickle browsers of the retail shelves, this serves a great perlude to what’s awaiting them in the book. Always knew about this book; but only now I know what is it about it…!

    Now I also know how to write an interesting summary of a book..! 🙂

    Regards
    Nanda

  9. Rajesh,

    Have one more perspective on this.

    1. Where ever there is extraordinary success, there is an attempt to attach the causal (and controllable) attributes to it and hence create a kind of halo of “success created by intentional efforts rather than a mere assembly of chance circumstances”. This may be due to our need to codify and hence replicate best practices and success (make it a repeatable and predicatable process!). Past behavior then becomes an anchor point to understand the future (rational thinkers live by extrapolation).

    2. Failure evokes 2 kinds of reactions:

    2.1 a set of people who attribute this to randomness (fate/destiny, etc.) and hence allow impact of randomness to soothe their sense of self esteem.
    2.2 a set of people who try to try to uncover the causes (“lessons learnt”), and determine the preventives; thus ignoring the existence of randomness and fooling themselves into a sense of hyper activity till the next failure/success hits; when they can get into acts 1, 2.1 or 2.2 above.

    I was just wondering as to how situations may unfold if we took Nassim Nicholas Taleb’s book to heart:

    a.Will an organization who manages to scrape by a high maturity appraisal declare in the closing meeting that “this was mere chance” actually and nothing to do with the heroic efforts of all and sundry that usually get credited?

    b.Will a CEO declare in the Quarterly results report that the extraordinary results cannot be explained and is an outcome of mere chance? (it was just a matter of time that we saw an upturn).

    c.Instead of force-fitting people into a bell curve, can we allow forces of randomness to throw out the super performers and the dud ones?

    d. What would happen to the jobs of astrologers and Godmen who claim to explain cause-effect relationships in the cosmic world, and help with divine interventions and then bask in the glory of success achieved by acts of sheer randomness?

    I sometimes feel that there may be some merit in gladly allowing ourselves to be fooled by randomness; that makes lives interesting and keeps lots of jobs intact.

    I do hope that my “random thoughts” are posted on your blog and readers will scratch their brains to decipher “non random philosophical strains” out of this:).

    Wish your blog readers a sequence of Happy Random tidings thru the week.

    Cheers
    Prakash

    1. Hi Prakash,

      That was an inspired piece of writing!

      I really liked:

      b.Will a CEO declare in the Quarterly results report that the extraordinary results cannot be explained and is an outcome of mere chance? (it was just a matter of time that we saw an upturn).

      Thanks and regards

      Rajesh

  10. Hi Rajesh,

    Nice….sounds like a really good read! I would love to get my hands on this one. I agree that man is hooked onto predictive modeling simply because he is extremely averse to uncertainty…. 🙂

    Cheers and keep up the great work…
    Chris

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