Tuesday, October 03, 2006

Fooled by Randomness – a book review


Fooled by Randomness by Nassim Nicholas Taleb is one of the weirdest books I have had the pleasure of reading. And yet I can’t get past the idea that there are many wonderful truths within. Taleb is a securities trader as well as an adjunct professor at the Courant Institute of Mathematical Sciences of New York University. His writing style is both disjointed and complex bringing elements of math, statistics, ancient mythology and history together. I could rarely follow his train of thought even though each sentence making up that train seemed to make sense.

The overwhelming theme of the book is that life (including the stock and bond markets) is overwhelmingly influenced by random effects that we ignore at our peril. However, we must also not attribute any real meaning to these random events or try to find trends in them because they are, indeed, random. He posits that the human brain is wired to interpret events as causing and caused by other events whether that is the case or not. When we are lucky we ascribe it to our skill at interpreting events. When we are not lucky, we ascribe it to bad luck or others “out to get us”.

Even science and scientists take a hit from Taleb when he emphasizes that a theory is either (1) currently disproven or (2) not yet disproven. It will never be proven correct as no amount of observation can ever prove there are no black swans. (That last sentence is a good example of the book’s style.)

The text is thick with irony and sarcasm. It is best read with the attitude that the author is trying to be humorous or at least doesn’t wish to be taken too serious. Then you’ll understand just how serious he is – and funny.

One of the best parts occurs at the end of the book when he, against his own best judgment, gives this piece of unsolicited advice:
Dress at your best on your execution day (shave carefully); try to leave a good impression on the death squad by standing erect and proud. Try not to play victim when diagnosed with cancer (hide it from others and only share the information with the doctor – it will avert the platitudes and nobody will treat you like a victim worthy of their pity; in addition the dignified attitude will make both defeat and victory feel equally heroic). Be extremely courteous to your assistant when you lose money (instead of taking it out on him as many of the traders whom I scorn routinely do). 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. … The only article Lady Fortuna has no control over is your behavior. Good luck.

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