Finance
by Nassim Nicholas Taleb
Was it skill, or just luck?
Nassim Taleb wrote this after years as an options trader, watching colleagues get rich and then blow up. Fooled by Randomness asks why people so often mistake luck for skill, and why those who made money in the markets are so sure they know why.
Hear a sample · read by Laura
Taleb asks you to picture someone paid a fortune to play one round of Russian roulette. He survives, gets rich, and people start admiring his judgement. Taleb says to judge any result by the other ways it could have turned out, which he calls alternative histories.
Taleb once told colleagues he thought the market would probably rise that week, yet he was betting on a fall. A small likely rise mattered less to him than a large unlikely drop. Being right often means little if the times you're wrong cost more than all your wins.
Put enough monkeys at typewriters and one will eventually type the Iliad. Taleb asks whether you'd bet on it producing the Odyssey next. That's survivorship bias. We meet the traders who survived and never see the many who failed, which makes the winners look wiser than they were.
Taleb doesn't claim to be immune. He's as easily fooled as anyone, so like Odysseus tied to the mast, he relies on tricks instead of willpower. He avoids the daily news and doesn't watch prices all day, because most of what they show is noise.
Luck
Plenty of rich, confident traders are simply lucky, and neither they nor we can tell.
Other outcomes
Judge a decision by everything that could have happened, including what didn't.
Russian roulette
A man who got rich playing Russian roulette still made a terrible bet.
Survivors
We only hear from the winners. The many who took the same risks and lost stay silent.
Noise
Check your investments every day and you mostly see noise, which makes you anxious for nothing.
A story from the book
Taleb's fictional trader Nero Tulip plays safe and earns a decent living. His neighbour John, a high-yield bond trader, earns far more, lives in a bigger house and makes Nero feel like a failure. Then the market turns, and in a short time John is wiped out.
One thing to try
For one week, check a number that moves all day, like your portfolio or a sales dashboard, only once, on Friday. Note whether you missed anything that mattered. Taleb's bet is that you'll have missed mostly noise.
Knotd has the key ideas from 250+ non-fiction books, each in a few minutes, in plain words. Fooled by Randomness comes with a Spot the Trap case to make it stick.
Get the whole book on KnotdOpen in the appWas it skill, or just luck? Nassim Taleb wrote this after years as an options trader, watching colleagues get rich and then blow up. Fooled by Randomness asks why people so often mistake luck for skill, and why those who made money in the markets are so sure they know why.
Alternative histories; How often versus how much; The monkeys at the typewriters; Wax in his ears.
For one week, check a number that moves all day, like your portfolio or a sales dashboard, only once, on Friday. Note whether you missed anything that mattered. Taleb's bet is that you'll have missed mostly noise.
Yes. Knotd has the key ideas from Fooled by Randomness in a few minutes, in plain words, plus a Spot the Trap case to test them. It's one of 250+ non-fiction books in the app.
