This past month I decided to re-read Fooled by Randomness an excellent book written by Nasim Taleb. The book is a great read for anyone that hasn’t looked or isn’t used to looking at various events from a mathematical or statistical perspective.
As the title suggests the crux of the book is about the whole notion of being fools of random events; something that many of us fall victim to, including yours truly and even the author who as a mathematical trader is already aware of the subject. As the author himself puts it the book is about “luck disguised and perceived as non-luck (that is, skills) and, more generally, randomness disguised and perceived as non-randomness (that is, determinism). It manifests itself in the shape of
The reason why I thought this would be a good subject to start my first blog post was that I also believe that many of us fall victim to associating many and at times all events around ourselves to our own or someone else’s skills, instead of simply to luck. Now I’m not denying that skills can’t be the sole or at least play a major role in
In his book Taleb writes: “Such confusion crops up in the most unexpected areas, even science, though not in such an accentuated and obvious manner as it does in the world of business. It is endemic in politics, as it can be encountered in the shape of a country’s president discounting on the jobs that “he” created, “his” recovery, and “his predecessor’s” inflation. We are genetically still very close to our ancestors who roamed the savannah. The formation of our beliefs is fraught with superstitions – even today (I might say, especially today). Just as one day some primitive tribesman scratched his nose, saw rain falling, and developed an elaborate method of scratching his nose to bring on the much-needed rain, 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”.
I’m not here to suggest that in the
Life is at times difficult for realists like myself who are mainly dependent on facts to make decisions, but it becomes even tougher when we add to our realism a dose of probabilistic skepticism. For
Having said that I also realize that being a realist and/or a probabilistic skeptic doesn’t mean that we have a case of analysis paralysis, or forgo making any decisions such as voting in an election, or choosing a wife or husband until we have all the facts and have analyzed all the possible outcomes.
To wrap it up it is interesting that even after the collapse of the stock market in the three year period of 2000-2003 we still have some fools of randomness that believe the current real estate market boom is different than the stock market bubble or other real estate bubbles or any other past asset bubbles.