Fooled By Randomness

Cover of the book

I recently finished reading this extraordinary book by the well known quantitative trader cum Wall street dissident Nassim Nicholas Taleb. The book provides an interesting take on the common human fallacies of mistaking random noises as patterns and striving to find a reason and logical connection to everything that happens around him. The book is actually a prequel to the more famous The Black Swan in which the author goes ahead with his theory and suggests the existence of a rare and often misunderstood event which he coins as the black swan event.

Coming back to FbR, the book transcends the philosophical tone and invariably directs our attention to the various anomalies that govern the information rich world that we live in. Taleb uses heuristic procedures to describe what is commonly called the survivorship bias. The bias essentially states that we tend to glamorize the winners in a bet and refuse to acknowledge the whole gamut of losers who fall behind the curtains to conceal the sad face of a rapidly devolving world. The Ludic Fallacy as coined by Taleb states in simple terms the platonic ideals of the ignorant man wherein the presence of a tangible and detectable object is taken to be the evidence of absence of a more messier and jargogled truth. The capacity of man to rhetoric is ridiculed and the inherent tendency to rationalize the available data at hand condemned. The author patronizes the financial news reporters and says that though he keeps his TV set on to view the happenings, much to the chagrin of his colleagues he mutes it to filter out the irrelevant noise!! Strangely the absence of evidence of an event is commonly mistaken to be the evidence of absence of the event!!

Taleb quotes Gladwell to drive home the point of skewness in everyday affairs. In quite categorical terms he states that its a common human error to mistake a wager to be 50:50 balanced when it is not. While in a 99:1 the chances of winning is greater the 1 % chance of losing on a big note compensates for the non-linearity.

Skepticism abounds in the book and the author seems to revel in it. An ardent admirer of Popper and the likes of Soros of modern times, Taleb questions the set principles of the financial world. His fervent appeal to listen to statistics than merely judging through explanations is amply buffeted with examples and references. In ‘If we’re so rich why aren’t we smart?’ he questions the notion that successful people become so by dint of their superior mental prowess and analytical capability. He opines that this may not always be so. There may have been in the career of the concerned person a series of such minute but important events that eventually led to the turn in the fortune of the man. It might have been a coincidence that he landed up the right job when the interviewee was in a boisterous mood, it could have been just pure luck that he bumped onto the famous lawyer in a bar that eventually led him to fight the battle of his life and emerge victorious in the process. In short, a series of small events that led to a consequence so mammoth that it dwarfed the rest of the details. This too finds a name that comes by the term-‘The Butterfly Effect’. A butterfly fluttering its wings somewhere in India can cause a destructive hurricane to wreak havoc in a non-descript part of North-America. Impossible you say? Scientists can actually prove the logical connectivity of such an event!!

“True traders I believe dress sloppily are often ugly and exhibit the intellectual curiosity of someone who would be more interested in the information revealing aspect of a garbage can than the Cezanne painting on the wall”- Taleb in Fooled By Randomness.

“Heroes are heroes because they are heroic in behavior, not because they won or lost”- Taleb again.

An MBA degree holder himself Taleb does not restrict himself on condemning just the television reporters or the financial gurus but goes so far as to ridicule the management education as a whole. The book is an instant classic in that it knows no limits and is a brilliant, chaotic yet structured criticism of everything and anything, which strangely, strikes a familiar chord. His opinions are supplemented with incisive references and mathematical proofs so much so that you can’t help but relate to the meanderings.

The book is a must read for those aspiring for a financial career. The key element of the book is that it provides an expansive and wondrous insight into the workings of the financial industry with no holds barred criticism of anything remotely connected to it. The book reads like a monologue on atheism by a practicing Hindu saint!!

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