''Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets'' is a book by
Nassim Nicholas Taleb
Nassim Nicholas Taleb (; alternatively ''Nessim ''or'' Nissim''; born 12 September 1960) is a Lebanese-American essayist, mathematical statistician, former option trader, risk analyst, and aphorist whose work concerns problems of randomness, ...
that deals with the fallibility of human knowledge. It was first published in 2001. Updated editions were released a few years later. The book is the first part of Taleb's multi-volume philosophical essay on uncertainty, titled the ''
Incerto'', which also includes ''
The Black Swan'' (2007–2010), ''
The Bed of Procrustes
''The Bed of Procrustes: Philosophical and Practical Aphorisms'' is a philosophy book by Nassim Nicholas Taleb written in the aphoristic style. It was first released on November 30, 2010 by Random House. An updated edition was released on Octo ...
'' (2010–2016), ''
Antifragile'' (2012), and ''
Skin in the Game'' (2018).
Thesis
Taleb sets forth the idea that modern humans are often unaware of the existence of
randomness
In common usage, randomness is the apparent or actual lack of pattern or predictability in events. A random sequence of events, symbols or steps often has no order and does not follow an intelligible pattern or combination. Individual rand ...
. They tend to explain random outcomes as
non-random
In common usage, randomness is the apparent or actual lack of pattern or predictability in events. A random sequence of events, symbols or steps often has no order and does not follow an intelligible pattern or combination. Individual ran ...
.
Human beings:
# overestimate
causality
Causality (also referred to as causation, or cause and effect) is influence by which one event, process, state, or object (''a'' ''cause'') contributes to the production of another event, process, state, or object (an ''effect'') where the cau ...
, e.g., they see elephants in the clouds instead of understanding that they are in fact randomly shaped clouds that appear to our eyes as elephants (or something else);
# tend to view the world as more
explainable than it really is. So they look for explanations even when there are none.
Other misperceptions of randomness that are discussed include:
*
Survivorship bias
Survivorship bias or survival bias is the logical error of concentrating on entities that passed a selection process while overlooking those that did not. This can lead to incorrect conclusions because of incomplete data.
Survivorship bias is ...
. We see the winners and try to learn from them, while forgetting the huge number of losers.
* Skewed distributions. Many real life phenomena are not 50:50 bets like tossing a coin, but have various unusual and
counter-intuitive distributions. An example of this is a 99:1 bet in which you almost always win, but when you lose, you lose all your savings. People can easily be fooled by statements like "I won this bet 50 times". According to Taleb: "Option sellers, it is said, eat like chickens and go to the bathroom like elephants", which is to say, option sellers may earn a steady small income from selling the options, but when a disaster happens they lose a fortune.
Reaction
The book was selected by ''
Fortune
Fortune may refer to:
General
* Fortuna or Fortune, the Roman goddess of luck
* Luck
* Wealth
* Fortune, a prediction made in fortune-telling
* Fortune, in a fortune cookie
Arts and entertainment Film and television
* ''The Fortune'' (1931 film) ...
'' as one of the 75 "Smartest Books of All Time." ''
U.S.A Today'' recounted that many criticisms raised in this book of the financial industry turned out to be justified. ''
Forbes
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also re ...
'' described the book as being playful, self-effacing and at times insufferably arrogant, but always thought provoking. ''
The New Yorker
''The New Yorker'' is an American weekly magazine featuring journalism, commentary, criticism, essays, fiction, satire, cartoons, and poetry. Founded as a weekly in 1925, the magazine is published 47 times annually, with five of these issues ...
'' (one of the publications which receives more favourable comments in this book) said that the book was to conventional
Wall Street
Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for t ...
wisdom what
Martin Luther
Martin Luther (; ; 10 November 1483 – 18 February 1546) was a German priest, theologian, author, hymnwriter, and professor, and Order of Saint Augustine, Augustinian friar. He is the seminal figure of the Reformation, Protestant Refo ...
’s
ninety-nine '' ' theses">ic' theses were to the Catholic Church.
Editions
*In 2001, TEXERE published the first edition of the book. (, London : Texere, 2001)
*In 2004, TEXERE published a revamped second edition.
*In 2005,
Random House
Random House is an American book publisher and the largest general-interest paperback publisher in the world. The company has several independently managed subsidiaries around the world. It is part of Penguin Random House, which is owned by Germ ...
published a softback edition with more changes. (, New York : Random house, 2005)
*In 2005, a French version appeared, with many unique changes.
*The book has been translated into 20 languages,
fooled by randomness
/ref> and is reported to have sold over half a million copies.
*Further editions have been published by Penguin (softback, May 2007) and Random House (hardback, October 2008.)
See also
* List of cognitive biases
Cognitive biases are systematic patterns of deviation from norm and/or rationality in judgment. They are often studied in psychology, sociology and behavioral economics.
Although the reality of most of these biases is confirmed by reproducible ...
* Ludic fallacy
The ludic fallacy, proposed by Nassim Nicholas Taleb in his book '' The Black Swan'' ( 2007), is "the misuse of games to model real-life situations". Taleb explains the fallacy as "basing studies of chance on the narrow world of games and dice". ...
* Pareidolia
Pareidolia (; ) is the tendency for perception to impose a meaningful interpretation on a nebulous stimulus, usually visual, so that one sees an object, pattern, or meaning where there is none.
Common examples are perceived images of animals, ...
– the psychological phenomenon of perceiving patterns in randomness
References
External links
*
View
on Google Books
Google Books (previously known as Google Book Search, Google Print, and by its code-name Project Ocean) is a service from Google Inc. that searches the full text of books and magazines that Google has scanned, converted to text using optical c ...
{{DEFAULTSORT:Fooled By Randomness
2001 non-fiction books
Books by Nassim Nicholas Taleb
Psychology books
Science books
Finance books
Epistemology literature
Books about traders
Random House books