Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (Incerto Book 1)

Fooled by Randomness is a standalone book in Nassim Nicholas Taleb’s landmark Incerto series, an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision-making in a world we don’t understand. The other books in the series are The Black Swan, Antifragile, Skin in the Game, and The Bed of Procrustes.Now in a striking new hardcover edition, Fooled by Randomness is the word-of-mouth sensation that will change the way you think about business and the world. Nassim Nicholas Taleb–veteran trader, renowned risk expert, polymathic scholar, erudite raconteur, and New York Times bestselling author of The Black Swan–has written a modern classic that turns on its head what we believe about luck and skill. This book is about luck–or more precisely, about how we perceive and deal with luck in life and business.Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill–the world of trading–Fooled by Randomness provides captivating insight into one of the least understood factors in all our lives. Writing in an entertaining narrative style, the author tackles major intellectual issues related to the underestimation of the influence of happenstance on our lives.The book is populated with an array of characters, some of whom have grasped, in their own way, the significance of chance: the baseball legend Yogi Berra; the philosopher of knowledge Karl Popper; the ancient world’s wisest man, Solon; the modern financier George Soros; and the Greek voyager Odysseus. We also meet the fictional Nero, who seems to understand the role of randomness in his professional life but falls victim to his own superstitious foolishness. However, the most recognizable character of all remains unnamed–the lucky fool who happens to be in the right place at the right time–he embodies 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 by chance.Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover nonexistent 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.PRAISE FOR FOOLED BY RANDOMNESSNamed by Fortune One of the Smartest Books of All Time A Financial Times Best Business Book of the Year “[Fooled by Randomness] is to conventional Wall Street wisdom approximately what Martin Luther’s ninety-five theses were to the Catholic Church.” –Malcolm Gladwell, author of Blink“The book that rolled down Wall Street like a hand grenade.” –Maggie Mahar, author of Bull! A History of the Boom, 1982—1999“Fascinating . . . Taleb will grab you.” –Peter L. Bernstein, author of Capital Ideas Evolving“Recalls the best of scientist/essayists like Richard Dawkins . . . and Stephen Jay Gould.” –Michael Schrage, author of Serious Play: How the World’s Best Companies Simulate to Innovate“We need a book like this. . . . Fun to read, refreshingly independent-minded.” –Robert J. Shiller, author of Irrational Exuberance“Powerful . . . loaded with crackling little insights [and] extreme brilliance.” –National Review Content: pt. I: Solon's warning : skewness, asymmetry, induction. If you're so rich, why aren't you so smart? A bizarre accounting method A mathematical mediation on history Randomness, nonsense, and the scientific intellectual Survival of the least fit : can evolution be fooled by randomness? Skewness and asymmetry The problem of induction -- pt. II. Monkeys on typewriters : survivorship and other biases. Too many millionaires next door It is easier to buy and sell than fry an egg Loser takes all : on the nonlinearities of life Randomness and our mind : we are probability blind -- pt. III. Wax in my ears : living with randomitis. Gamblers' ticks and pigeons in a box -- Carneades comes to Rome : on probability and skepticism -- Bacchus abandons Antony -- Epilogue: Solon told you so. Preface -- Acknowledgments for the updated second edition -- Chapter summaries -- Prologue -- pt. I. Solon's warning : skewness, asymmetry, induction -- 1. If you're so rich, why aren't you so smart? -- Nero Tulip -- Hit by lightning -- Temporary sanity -- Modus operandi -- No work ethics -- There are always secrets -- John the high-yield trader -- An overpaid hick -- The red-hot summer -- Serotonin and randomness -- You dentist is rich, very rich -- 2. A bizarre accounting method -- Alternative history -- Russian roulette -- Possible worlds -- An even more vicious roulette -- Smooth peer relations -- Salvation via aeroflot -- Solon visits Regine's nightclub -- George Will is no Solon : on counterintuitive truths -- Humiliated in debates -- A different kind of earthquake -- Proverbs galore -- Risk managers -- Epiphenomena -- 3. A mathematical mediation on history -- Europlayboy mathematics -- The tools -- Monte Carlo mathematics -- Fun in my attic -- Making history -- Zorglubs crowding the attic -- Denigration of history -- The stove is hot -- Skills in predicting past history -- My Solon -- Distilled thinking on your PalmPilot -- Breaking news -- Shiller redux -- Gerontocracy -- Philostratus in Monte Carlo : on the difference between noise and information -- 4. Randomness, nonsense, and the scientific intellectual -- Randomness and the verb -- Reverse turing test -- The father of all pseudothinkers -- Monte Carlo poetry -- 5. Survival of the least fit, can evolution be fooled by randomness? -- Carlos the emerging-markets wizard -- The good years -- Averaging down -- Lines in the sand -- John the high-yield trader -- The quant who knew computers and equations -- The traits they shared -- A review of market fools of randomness constants -- Naive evolutionary theories -- Can evolution be fooled by randomness? -- 6. Skewness and asymmetry -- The median is not the message -- Bull and bear zoology -- An arrogant twenty-nine-year-old son -- Rare events -- Symmetry and science -- Almost everybody is above average -- The rare-event fallacy -- The mother of all deceptions -- Why don't statisticians detect rare events? -- A mischievous child replaces the black balls -- 7. The problem of induction -- From Bacon to Hume -- Cygnus Stratus -- Nordhoff's -- Sir Karl's promoting agent -- Location, location -- Popper's answer -- Open society -- Nobody is perfect -- Induction and memory -- Pascal's wager -- Thank you, Solon. pt. II. Monkeys on typewriters : survivorship and other biases -- It depends on the number of monkeys -- Vicious real life -- This section -- 8. Too many millionaires next door -- How to stop the sting of failure -- Somewhat happy -- Too much work -- You're a failure -- Double survivorship biases -- More experts -- Visibility winners -- It's a bull market -- A guru's opinion -- 9. It is easier to buy and sell than fry an egg -- Fooled by numbers -- Placebo investors -- Nobody has to be competent -- Regression to the mean -- Ergodicity -- Life is coincidental -- The mysterious letter -- An interrupted tennis game -- Reverse survivors -- The birthday paradox -- It's a small world! -- Data mining, statistics, and charlatanism -- The best book I have ever read! -- The backtester -- A more unsettling extension -- The earnings season : fooled by the results -- Comparative luck -- Cancer cures -- Professor Pearson goes to Monte Carlo (literally) : randomness does not look random! -- The dog that did not bark : on biases in scientific knowledge -- I have no conclusion -- 10. Loser takes all, on the nonlinearities of life -- The sandpile effect -- Enter randomness -- Learning to type -- Mathematics inside and outside the real world -- The science of networks -- Our brain -- Buridan's donkey or the good side of randomness -- When it rains, it pours -- 11. Randomness and our mind : we are probability blind -- Paris or the Bahamas? -- Some architectural considerations -- Beware the philosopher bureaucrat -- Satisficing -- Flawed, not just imperfect -- Kahneman and Tversky -- Where is Napoleon when we need him? -- "I'm as good as my last trade" and other heuristics -- Degree in a fortune cookie -- Two systems of reasoning -- Why we don't marry the first date -- Our natural habitat -- Fast and frugal -- Neurobiologists too -- Kafka in a courtroom -- An absurd world -- Examples of biases in understanding probability -- We are option blind -- Probabilities and the media (more journalists) -- CNBC at lunchtime -- You should be dead by now -- The Bloomberg explanations -- Filtering methods -- We do not understand confidence levels -- An admission. pt. III. Wax in my ears : living with randomitis -- I am not so intelligent -- Wittgenstein's ruler -- The Odyssean mute command -- 12. Gamblers' ticks and pigeons in a box -- Taxi-cab English and causality -- The Skinner pigeon experiment -- Philostratus redux -- 13. Carneades comes to Rome : on probability and skepticism -- Carneades comes to Rome -- Probability, the child of skepticism -- Monsieur de Norpois' opinions -- Path dependence of beliefs -- Computing instead of thinking -- From funeral to funeral -- 14. Bacchus abandons Antony -- Notes on Jackie O.'s funeral -- Randomness and personal elegance -- Epilogue. Solon told you so -- Beware the London traffic jams -- Postscript. Three afterthoughts in the shower -- First thought : the inverse skills problem -- Second though : on some additional benefits of randomness -- Uncertainty and happiness -- The scrambling of messages -- Third thought : standing on one leg -- Acknowledgments for the first edition -- A trip to the library : notes and reading recommendations -- Notes -- References -- Index.

Now in a striking new hardcover edition, Fooled by Randomness is the word-of-mouth sensation that will change the way you think about business and the world. Nassim Nicholas Taleb–veteran trader, renowned risk expert, polymathic scholar, erudite raconteur, and New York Times bestselling author of The Black Swan–has written a modern classic that turns on its head what we believe about luck and skill.

This book is about luck–or more precisely, about how we perceive and deal with luck in life and business. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill–the world of trading–Fooled by Randomness provides captivating insight into one of the least understood factors in all our lives. Writing in an entertaining narrative style, the author tackles major intellectual issues related to the underestimation of the influence of happenstance on our lives.

The book is populated with an array of characters, some of whom have grasped, in their own way, the significance of chance: the baseball legend Yogi Berra; the philosopher of knowledge Karl Popper; the ancient world’s wisest man, Solon; the modern financier George Soros; and the Greek voyager Odysseus. We also meet the fictional Nero, who seems to understand the role of randomness in his professional life but falls victim to his own superstitious foolishness.

However, the most recognizable character of all remains unnamed–the lucky fool who happens to be in the right place at the right time–he embodies 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 by chance.

Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover nonexistent 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.

PRAISE FOR FOOLED BY RANDOMNESS:

Named by Fortune One of the Smartest Books of All Time

A Financial Times Best Business Book of the Year

'[Fooled by Randomness] is to conventional Wall Street wisdom approximately what Martin Luther’s ninety-five theses were to the Catholic Church.'
–Malcolm Gladwell, author of Blink

'The book that rolled down Wall Street like a hand grenade.'
–Maggie Mahar, author of Bull! A History of the Boom, 1982-1999

'Fascinating . . . Taleb will grab you.'
–Peter L. Bernstein, author of Capital Ideas Evolving

'Recalls the best of scientist/essayists like Richard Dawkins . . . and Stephen Jay Gould.'
–Michael Schrage, author of Serious Play: How the World’s Best Companies Simulate to Innovate

'We need a book like this. . . . Fun to read, refreshingly independent-minded.'
–Robert J. Shiller, author of Irrational Exuberance

'Powerful . . . loaded with crackling little insights [and] extreme brilliance.'
–National Review

'If asked to name the five best books written about markets, Fooled by Randomness would be on my list.'
–Jack D. Schwager, author of Market Wizards: Interviews with Top Traders

'Excellent and thought-provoking . . . an entertaining book.'
–Financial Times

Fooled by Randomness is a standalone book in Nassim Nicholas Taleb’s landmark Incerto series, an investigation of opacity, luck, uncertainty, probability, human error, risk, and decision-making in a world we don’t understand. The other books in the series are The Black Swan, Antifragile, Skin in the Game, and The Bed of Procrustes . Fooled by Randomness is the word-of-mouth sensation that will change the way you think about business and the world. Nassim Nicholas Taleb–veteran trader, renowned risk expert, polymathic scholar, erudite raconteur, and New York Times bestselling author of The Black Swan –has written a modern classic that turns on its head what we believe about luck and skill. This book is about luck–or more precisely, about how we perceive and deal with luck in life and business. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill–the world of trading– Fooled by Randomness provides captivating insight into one of the least understood factors in all our lives. Writing in an entertaining narrative style, the author tackles major intellectual issues related to the underestimation of the influence of happenstance on our lives. The book is populated with an array of characters, some of whom have grasped, in their own way, the significance of chance: the baseball legend Yogi Berra; the philosopher of knowledge Karl Popper; the ancient world’s wisest man, Solon; the modern financier George Soros; and the Greek voyager Odysseus. We also meet the fictional Nero, who seems to understand the role of randomness in his professional life but falls victim to his own superstitious foolishness. However, the most recognizable character of all remains unnamed–the lucky fool who happens to be in the right place at the right time–he embodies 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 by chance. Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover nonexistent 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. Named by Fortune One of the Smartest Books of All Time A Financial Times Best Business Book of the Year Amazon.com ReviewIf the prescriptions for getting rich that are outlined in books such as The Millionaire Next Door and Rich Dad Poor Dad are successful enough to make the books bestsellers, then one must ask, Why aren't there more millionaires? In Fooled by Randomness, 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. Highly recommended. --Harry C. EdwardsFrom Publishers WeeklyIn this look at financial luck, hedge fund manager Taleb (Dynamic Hedging) addresses the apparently irrational movement of money markets around the world. Using his own investing experience and examples of others' successes and disappointments, he discusses theories like Monte Carlo math (easy; considered cheating by purists) and the concept of Russian roulette. Taleb tells interesting, well-wrought stories about individual behavior: "While Nero has succeeded beyond his wildest dreams, both personally and intellectually, he is starting to consider himself as having missed a chance somewhere." While serious investors and mathematics enthusiasts will be intrigued, readers looking for practical investment strategies will be disappointed by this rambling intellectual discourse. Tables. 40,000-copy first printing; $150,000 marketing budget. Copyright 2001 Cahners Business Information, Inc. "[Taleb is] Wall Street's principal dissident. . . . [Fooled By Randomness] is to conventional Wall Street wisdom approximately what Martin Luther's ninety-nine theses were to the Catholic Church."--Malcolm Gladwell, The New Yorker Finally in paperback, the word-of-mouth sensation that will change the way you think about the markets and the world. This book is about luck: more precisely how we perceive luck in our personal and professional experiences. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill--the world of business--Fooled by Randomness is an irreverent, iconoclastic, eye-opening, and endlessly entertaining exploration of one of the least understood forces in all of our lives. — From the Trade Paperback edition. "[Taleb is] Wall Street's principal dissident. ... [Fooled By Randomness] is to conventional Wall Street wisdom approximately what Martin Luther's ninety-nine theses were to the Catholic Church." 'Malcolm Gladwell, The New Yorker Finally in paperback, the word-of-mouth sensation that will change the way you think about the markets and the world. This book is about luck: more precisely how we perceive luck in our personal and professional experiences. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill'the world of business'Fooled by Randomness is an irreverent, iconoclastic, eye-opening, and endlessly entertaining exploration of one of the least understood forces in all of our lives. From the Trade Paperback edition This work has shaken Wall Street thanks to its contention that much of what people perceive as skill playing the markets is often nothing more than luck. Abstract: This work has shaken Wall Street thanks to its contention that much of what people perceive as skill playing the markets is often nothing more than luck Contends that randomness and probability have a large impact on life, claims that people regularly fail to recognize that role, and tells how to differentiate between randomness in general and the financial markets in particular.