Fooled by randomness : the hidden role of chance in the markets and in life / Nassim Nicholas Taleb.

Format:

Book

Author/Creator:

Taleb, Nassim Nicholas, 1960-

Language:

English

Subjects (All):

Random variables.

Investments.

Fortune.

Physical Description:

xix, 203 pages ; 24 cm

Place of Publication:

New York : Texere, 2001.

Summary:

This book is about luck -- or more precisely how we perceive and deal with luck in business and life. Set against the backdrop of the most conspicuous forum in which luck is mistaken for skill -- the world of trading -- Fooled by Randomness is a captivating insight into one of the least understood factors in all our lives. Writing in an entertaining and narrative style, the author succeeds in tackling and explaining three major intellectual issues: the problem of induction, the survivorship biases, and our genetic unfitness to the modern world.

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

But the most recognizable character of all remains unnamed -- the lucky fool in the right place at the right time. The embodiment of 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 through chance. A monkey banging on a keyboard may eventually produce the Iliad, but would you sign him to write the sequel? Are we capable of distinguishing the fortunate charlatan from the genuine visionary? Must we always try to uncover non-existent 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.

Contents:

Mosques in the Clouds 1

Part I Solon's Warning - Skewness, Asymmetry, Induction 7

1 If You're So Rich Why Aren't You So Smart? 11

Nero Tulip 11

Hit by Lightning 11

Temporary Sanity 12

Modus Operandi 14

No Work Ethics 16

There Are Always Secrets 17

John the High-Yield Trader 17

An Overpaid Hick 19

The Red-Hot Summer 21

Serotonin and Randomness 22

Your Dentist Is Rich, Very Rich 24

2 A Bizarre Accounting Method 26

Alternative History 26

Russian Roulette 27

An Even More Vicious Roulette 28

Smooth Peer Relations 29

Salvation Via Aeroflot 30

Solon Visits Regine's Night Club 32

George Will Is No Solon: On Counterintuitive Truths 34

Humiliated in Debates 37

Risk Managers 38

3 A Mathematical Meditation on History 40

Europlayboy Mathematics 40

The Tools 41

Monte Carlo Mathematics 43

Fun in My Attic 45

Making History 45

Zorglubs Crowding the Attic 46

Denigration of History 47

The Stove Is Hot 48

My Solon 50

Distilled Thinking on Your PalmPilot 51

Breaking News 51

Shiller Redux 53

Gerontocracy 55

Philostratus in Monte Carlo: On the Difference Between Noise and Information 56

4 Randomness, Nonsense, and the Scientific Intellectual 60

Randomness and the Verb 60

Reverse Turing Test 62

The Father of All Pseudothinkers 64

Monte Carlo Poetry 64

5 Survival of the Least Fit - Can Evolution Be Fooled by Randomness? 68

Carlos the Emerging Markets Wizard 68

The Good Years 71

Averaging Down 72

Lines in the Sand 72

John the High-Yield Trader 74

The Quant Who Knew Computers and Equations 75

The Traits They Shared 78

A Review of Market Fools of Randomness Constants 78

Naive Evolutionary Theories 81

Can Evolution be Fooled by Randomness? 82

6 Skewness and Asymmetry 84

The Median Is Not the Message 84

Bull and Bear Zoology 86

An Arrogant 29-Year-Old Son 88

Rare Events 89

Symmetry and Science 90

The Rare Event Fallacy 93

The Mother of All Deceptions 93

Why Don't Statisticians Rare Events? 96

A Mischievous Child Replaces the Black Balls 97

7 The Problem of Induction 99

From Bacon to Hume 99

Cygnus Atratus 100

Niederhoffer, Victorian Gentleman 100

Sir Karl's Promoting Agent 103

Location, Location 105

Popper's Answer 106

Open Society 108

Nobody Is Perfect 108

Pascal's Wager 109

Thank You Solon 110

Part II Monkeys on Typewriters - Survivorship and Other Biases 111

It Depends On the Number of Monkeys 114

Vicious Real Life 115

This Section 115

8 Too Many Millionaires Next Door 117

How To Stop the Sting of Failure 117

Somewhat Happy 117

Too Much Work 118

You're a Failure 119

Double Survivorship Biases 120

More Experts 120

Visibility Winners 122

It's a Bull Market 122

A Guru's Opinion 123

9 It Is Easier To Buy and Sell Than Fry an Egg 125

Fooled by Numbers 127

Placebo Investors 127

Nobody Has To Be Competent 128

Ergodicity 129

Life Is Coincidental 131

The Mysterious Letter 131

An Interrupted Tennis Game 132

The Birthday Paradox 132

It's a Small World! 132

Data Mining, Statistics, and Charlatanism 133

The Best Book I Have Ever Read! 134

The Backtester 134

A More Unsettling Extension 136

The Earnings Season: Fooled by the Results 136

Cancer Cures 137

Professor Pearson Goes to Monte Carlo (Literally): Randomness Does Not Look Random! 139

The Dog That Did Not Bark: On Biases in Scientific Knowledge 140

I Have No Conclusion 141

10 Loser Takes All - On the Nonlinearities of Life 142

The Sandpile Effect 142

Enter Randomness 144

Learning to Type 144

Mathematics Inside and Outside the Real World 146

Buridan's Donkey or the Good Side of Randomness 147

When It Rains, It Pours 148

11 Randomness and Our Brain: We Are Probability Blind 149

Paris or the Bahamas? 149

Some Architectural Considerations 150

From Psychology to Neurobiology 152

Our Natural Habitat 153

Kafka in a Courtroom 154

An Absurd World 156

Kahneman and Tversky 157

Neurobiology 158

Examples of Biases in Understanding Probability 159

We Are Option Blind 160

Probabilities and the Media (More Journalists) 162

CNBC at Lunch Time 163

You Should Be Dead by Now 163

The Bloomberg Explanations 164

Filtering Methods 166

We Do Not Understand Confidence Levels 168

An Admission 168

Part III Wax in my Ears - Living With Randomitis 169

I Am Not So Intelligent 172

The Odyssean Mute Command 173

12 Gamblers' Ticks and Pigeons in a Box 175

Taxi-Cab English and Causality 175

The Skinner Pigeon Experiment 178

Philostratus Redux 179

13 Carneades Comes to Rome: On Probability and Skepticism 182

Carneades Comes to Rome 183

Probability the Child of Skepticism 184

Monsieur de Norpois's Opinions 185

Path Dependence of Beliefs 187

Computing Instead of Thinking 188

From Funeral to Funeral 190

14 Bacchus Abandons Antony 191

Notes on Jackie O.'s Funeral 192

Randomness and Personal Elegance 194

Epilogue: Solon Told You So 196

Beware the London Traffic Jams 196.

Notes:

Includes bibliographical references and index.

ISBN:

1587990717

OCLC:

48124435