Nassim N. Taleb: Fooled by Randomness

Mar 07, 2015

I have to admit I haven’t been reading too much in the last few weeks. It’s not surprising. I generally read in batches with stretches in between. However, I have finished Fooled by Randomness by Nassim N. Taleb at the end of my streak and I haven’t written anything down about it.

The topic of the book falls in step with Signal and Noise at least to some degree - randomness is the focal point. As is usual for Taleb he presents his ideas, which are interesting and at least worth thinking about, in a very condescending tone that many readers find somewhere between irritating and completely insufferable. I didn’t care much for it either. The author talks about repetition of mistakes, overconfidence and hubris of everybody while he’s the exception, graceful enough to share his wisdom with the rest of the world. After all, he might be correct but if you can’t stand his tone through the first chapter, don’t bother continuing.

As I’ve already said, the key subject of the book is randomness and its many manifestations in the world, especially in the social world. The first example he gives are two Wall Street traders with different strategies that sum up to the slow turtle winning the race. The extra addition is a pinch of serotonin that makes it hard for human turtles to stick to their believes when the rabbit is doing extremely well at the moment. It touches on several cognitive biases described by Kahneman and Tversky.

Probabilistic professions are hard because they’re not intuitive. One needs to look at all the possible outcomes of the world, weigh them and average them instead of just focusing of the best possible scenario. By sheer rules of probability blind guessing might survive in the short run and is retrospectively explained on a daily basis (basically all news) but it doesn’t pay off in the long run. Human emotional reactions to risk and loss are key players in this game and lead us astray. We try to manage risks but all we can do is to play with numbers and give an appearance of control.

An interesting point I really like is the criticism of historians who ascribe intentions and descriptions to the past based on the observation of a single outcome. It makes for a great story and humans loves stories but it gives us false feeling of understanding.

The following chapters go through other cognitive biases that make people bad at dealing with randomness (overconfidence, aversion to loss, normalcy bias, induction, survival bias, regression to average, absence of evidence v. evidence of absence etc.) and doesn’t say anything particularly new. He just reframes the discussion in stories (because narrative is the best communication tool) and ancient poetry.

All put together the book isn’t surprisingly novel or innovative. For anyone who knows at least something about cognitive science, behavioural economics and neuroscience it is just restating of facts in an obnoxious tone. There are nice and useful ideas (or their presentations) but I doubt there’s anyone who wouldn’t enjoy more some other book on the topic.