Fooled by Randomness is written by Nassim Nicholas Taleb, who is the cleverest author I have read. He does not suffer fools gladly, and liberally showers criticism on all sorts of people. What makes this arrogance bearable is that he is so funny.
I amused and fearful at the same time while reading the book. Amused because we are so foolish in the way we reason, and fearful because I think Taleb would find me foolish.
Are you fooled by randomness?
- A disease strikes one out of a thousand people.
- A test for the disease has a 5% false positive rate.
- You test positive for the disease.
What is the likelihood that you have this disease? Many people say there is a 95% chance. Even doctors who took the test said that you are 95% likely to have the disease. This means we are getting inaccurate diagnoses from the professionals.
The correct answer is that you have a less than 2% chance of having the disease. If you can’t work this out and still think the answer is 95%, you need to read this book.
Who should read Fooled by Randomness
Investors and traders
Markets are irrational, and yet people are still trying to predict which way it will go. This kind of thinking is futile, according to Taleb, since much of what happens is random. Better to adopt a trading strategy that accounts for randomness instead of thinking we have the skill to beat the odds. This will maximise our overall returns.
Students of life
Those of us who want to understand more about life would learn a lot from this book. It explains how we read too much into random happenings in our personal lives, miscalculate life expectancies, and trust the experts even when they are wrong. We also work too hard on developing skills in certain areas when we should be working hard to understand the odds in the first place.
Quotes from Fooled by Randomness
My favourite quote
“Dress at your best on your execution day; try to leave a good impression on the death squad by standing erect and proud. Try not to play victim when diagnosed with cancer. Be extremely courteous to your assistant when you lose money. Try not to blame others for your fate, even if they deserve blame. Never exhibit any self-pity, even if your significant other bolts with the handsome ski instructor or the younger aspiring model. Do not complain. If you suffer from a benign version of the attitude problem, do not start being a nice guy if your business dries up. The only article Lady Fortuna has no control over is your behaviour. ” (page 249)
“Mathematics is not just a numbers game, it is a way of thinking. We will see that probability is a qualitative subject. It is far more a way of thinking than a computational method. Mathematics is principally a tool to meditate, rather than to compute.” (page 44)
“We do not need to be rational and scientific when it comes to the details of our daily lives – only in those that can harm us and threaten our survival. Modern life seems to invite us to do the exact opposite; become extremely realistic and intellectual when it comes to such matters as religion and personal behaviour, yet as irrational as possible when it comes to matters ruled by randomness, say portfolio or real estate investments.” (page 77)
“No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word. We are left only with dignity as a solution – dignity defined as the execution of a protocol of behaviour that does not depend on the immediate circumstance. It may not be the optimal one, but it certainly is the one that makes us feel best. Grace under pressure, for example. Or in deciding not to toady up to someone, whatever the reward. Or in fighting a duel to save face. Or in signalling to a prospective mate during courtship: ‘Listen, I have a crush on you; I am obsessed with you, but I will not do a thing to compromise my dignity. Accordingly, the slightest snub and you will never see me again.'” (page 246)
Get the book if you want more brilliant insights!