Summary
Fooled by Randomness is Nassim Nicholas Taleb's first book exploring his ideas about extreme, unpredictable events, "Black Swans", and how they fool people into blindly trusting the results of mathematical models or narratives. He highlights our: obsession with the news; susceptibility to basic fallacies (eg. survivorship bias, hindsight bias, confirmation bias and more); and simplification of our incomprehensibly complex world.
Resonant
Just because an event has never happened before, doesn't mean it can’t happen.
Life and markets are not simple win/lose situations. The cost of the losses can be markedly different from gains of the wins. However, our biology is wired to make us feel good when we win even if the win is small. Hence, people bias towards small upsides but expose themselves to larger downsides.
Surprising
“My need to read everything prevented me from making contemplative stops.” - Taleb reflecting on reading too quickly as a younger man.
There are only two types of scientific theories, those that have been proven wrong and those that are yet to be proven wrong (inspired by Karl Popper). You can never prove a theory right due to the Black Swan problem.
Tangible
"I speculate in all of my activities on theories that represent some vision of the world but with the following stipulation: no rare event should harm me; in fact I want all conceivable rare events to help me." - Taleb
People all too often stake their reputations without reserve on an idea. When it is subsequently disproven, they continue to fight vigorously for it. Avoid backing yourself into a corner with the arguments you present to the world; leave room for uncertainty and learning.
Lachy’s Note: The majority of science in the Middle Ages has since been disproven; I wonder how much of science today will be disproven in 500 years?
1,000 x $1 gains is much less than 1 x $10,000 loss.
Check it out yourself! Fooled by Randomness
Great review!
“The majority of science in the Middle Ages has since been disproven; I wonder how much of science today will be disproven in 500 years?”
I wonder if this is too binary - almost all science produces approximations of rules, recognising that nuances are to be added over time. When something is “disproven”, it is because we have taken a wrong fork in the road somewhere (like attributing illness to “vapours”). I think much of modern science is on the right track and will be refined, rather than will be “disproven” in the way that Middle Ages vibes science was. What are the most significant recent examples of big reversals in science (the replication crisis comes to mind)?
Great read