FooledByRandomness

Fooled By Randomness (Nassim Taleb)

  • Ok. Was expecting better because of Russ Roberts recommendation. Learned a lot. Some epic one liners.
  • This book is about luck disguised and perceived as nonluck (that is skills) and, more generally, randomness disguised and perceived as non-randomness (that is, determinism).
  • We link economic prosperity to some rate cut by the Federal Reserve Board, or the success of a company with the appointment of the new president "at the helm".
  • This book has two purposes: to defend science (as a light beam across the noise of randomness) and to attack the scientist when he strays from his course (most disasters come from the fact that individual scientists do not have an innate understanding of standard error a clue about critical thinking, and likewise have proved both incapable of dealing with probabilities in the social sciences and incapable of accepting such facts).
  • Delivering advice assumes that our cognitive apparatus rather than our emotional machinery exerts some meaningful control over our actions.
  • It doesn't not matter how frequently something succeeds if failure is too costly to bear. ([BROKEN LINK: FTX])
  • Treasury bonds are safe; they are issued by the US government, and governments can hardly go bankrupt since they can freely print their own currency to pay back their obligation.
  • Work ethics, draw people to focus on noise rather than signal.

  • The idea of taking into account both the observed and unobserved possible outcomes sounds like lunacy.

    $10M earned through Russian roulette doesn't not have the same value of $10M earned through the diligent and artful practice of dentistry.

    I can no longer visualize a realized outcome without reference to the non-realized ones.

  • My Monte Carlo generator is far more a way of thinking than a computational method. Mathematics is principally a tool to meditate, rather than compute.
  • A mistake is not something to be determined after the fact, but in the light of the information until that point.
  • Robert Shillerf (1981): Prices swing more than the fundamental they are supposed to reflect, they visibly overreact by being too high at times (when their price overshoots the good news or when they to up with out any marked reason) or too low at others. Markets had to be wrong. Shiller then pronounced markets to be not as efficient as established by financial theory.
  • Economists are evaluated on how educated they sound, not on a scientific measure of their knowledge of reality.
  • The road from $16M to $1M is not as pleasant as the one from $0M to $1M.
  • How frequent the profit is irrelevant; it is the magnitude of the outcome that counts.
  • The best description of my lifelong business in the market is to try to benefit from rare events, events that do not tend to repeat themselves frequently, but accordingly present a large payoff when they occur. I believe that rare events are not fairly valued, and that the rare the event, the more undervalued it will be in price. The counter intuitive aspect of the trade (and the fact that our emotional wiring does not accommodate it gives me some form of advantage.

  • History teaches us that things that never happened before do happen.

    If the past did not resemble the past previous to it (the past's past) then why should our future resemble our current past?

  • Common statistical method is based on the steady augmentation of the confidence level, in nonlinear proportion to the number of observations. Where statistics becomes complicated, and fails us, is when we have distributions that are not symmetric.

    If there is a very small probability of finding a red ball in an urn dominated by black ones, our knowledge about the absence of red balls will increase very slowly. On the other hand our knowledge of the presence of red balls will dramatically improve once one of them is found.

    This asymmetry in knowledge is not trivial; it is central to this book and the philosophical problems of people like Hume and Popper.

  • "Lucas Critique" Robert Lucas dealt a death blow to econometrics by arguing that if people were rational then their rationality would cause them to figure out predictable patterns from the past and adapt, so that past information would be completely useless for predicting the future.
  • In Economics you can disguise charlatanism under the weight of equations and nobody can catch you since there is no such thing as a controlled experiment.
  • Maximizing the probability of winning does not lead to maximizing the expectation from the game when ones strategy may include skewness, ie: small chance of large loss and a large chance of small win.
  • Stay away from people of a competitive nature, they have the tendency to commoditize and reduce the world to categories (eg: how many paper they publish or what their rank is)
  • Popper came up with a major answer to the problem of induction (maybe the answer)
  • A trader that does not have a point that would make him change his mind is not a trader.
  • I use statistics and inductive methods to make aggressive bets, but will not use them to manage my risks and exposure.
  • The more data we have the more likely we are to drown in it.
  • Becoming more rational, or not feeling emotions of social slights is not part o the human race, at least not with our current biology
  • The mistake of ignoring survivor-ship bias is chronic especially among professionals. How? Because we are trained to take advantage of the information that is lying in front of our eyes, ignoring the information we dont see.
  • A possible future contribution of financial research: analysis of data mining and the study of surviorship bias. It is one of the rare areas of investigation where we have plenty of information but no ability to conduct experiments.
  • A population composed entirely of bad fund managers would produce a small amount of great track records.
  • Judging an investment that comes to you requires more stringent standards that judging an investment you seek, owning to selection bias.
  • Normative economics is like religion without the aesthetics.
  • One cannot make a decision without emotion.

  • No matter how good our choices, randomness will have the last word. We are left only with dignity as a solution – dignity of the execution of a protocol of behavior that does not depend on the immediate circumstance.

    Good enlightened advice and eloquent sermons do not register for more than a few moments when they go against our wiring.

    The interesting thing about stoicism is that it play on dignity and personal aesthetics, which are part of our genes. Start stressing personal elegance at your next misfortune. Exhibit "know how to live" in all circumstances

  • The only article Lady Fortuna has no control over is your behavior. Good luck.

  • A slightly random schedule prevents us from optimizing and being exceedingly efficient, particularly in the wrong things.

    (Would you like to know with great precision the date of your death ?)

  • People of a happy disposition rend to be of the staisficing kind, with a set idea of what they want in life and an ability to stop upon gaining satisfaction.

    An optimizing by comparison is the kind of person who will uproot himself and change his official residence just to reduce his tax bill by a few percentage points. (You would think the entire point of a higher income is to be free to choose where to live; in fact it seems for these people, wealth causes them to increase their dependence!)

  • We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.

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