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Author Topic: N. N. Taleb's Book: "Fooled by Randomness"  (Read 152 times)
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August 24, 2018, 11:50:50 PM
 #1

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Nassim Nicholas Taleb is an important author best known for making the phrase "Black Swan" famous, a Black Swan is a low probability event, that also is unpredictable yet has a huge impact.  Perhaps the best example of a Black Swan is September 11, 2001.  In fact, his most famous book is The Black Swan, the book I would like to introduce is his just-prior book, Fooled by Randomness.

Taleb is of Lebanese-Greek-Orthodox origin, his family was in Lebanon for centuries and came to accumulate wealth and political power there.  The Lebanese Civil War wiped out most of their wealth.  N. N. Taleb now lives in New York, he has been a professor and had many years as an independent quantitative trader.

*   *   *

Perhaps the main theme of his book is that randomness is much more prevalent in the world (including and especially in financial markets) than almost everybody recognizes.  This is, well, a bias that most of us are not aware of.  There is an over-rating of "experts", and an under-rating of careful planning (by investment managers say) to avoid disasters that come along, especially among money managers.

He discusses this range of topics from a probabilistic standpoint.

I am only at Page 71 of re-reading this important book.  I needed to get back up to speed on these ideas...  Among topics I have read about today:

-- all bubbles are pretty much the same.  A look back at history, along with some introspection and observation today suggest that we are in one (a BIG ONE) today

-- old ideas are generally better than new ones...

-- "Survivor Bias" makes the averages (eg Dow Jones Industrial Average) look better than it really is, the DJIA drops dying companies...

-- Beware of experts and journalists...

Many more not listed here.

*   *   *

I invite everyone to explore some of these ideas, perhaps along the lines of the Martin Armstrong thread.

And, I urge those of you with interest in any of the above ideas to read his book! 


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August 25, 2018, 05:58:17 AM
 #2

"All bubbles are pretty much the same"-I already know that without reading this guy's book.
"Beware of experts and journalists..."-I already know that as well,it's common sense.
I don't agree that old ideas are better than the new ones.I think that simple ideas are better than the complex ones.I'm not impressed by his book,sorry... Smiley

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August 30, 2018, 11:52:02 PM
 #3

Are his ideas not simple?   I've been a fan of Taleb for a while just because he makes you think differently about something taken for granted.  Thats really useful in that he triggers your own thought, I dont think he matches anyone else I can think of.    I dont believe for a second he is always right but certainly interesting worth reading and quite unique

I agree simplicity are often best, Einstein said something along those lines while describing things that appear very complex to most of us.  As have a few people, Im sure even the black swan concept did not originate with Taleb but he makes good use of the example with modern reference.   Every generation to some extent forgets some of the lessons learnt by the last it seems like, if this continues we have chinese whispers and knowledge must be rediscovered.   I think its true of finance

Quote
-- "Survivor Bias" makes the averages (eg Dow Jones Industrial Average) look better than it really is, the DJIA drops dying companies...

Important thing there would be the index drops the stock before its dead.   How well they do that and also avoiding brief success in entries is quite important feature to the index performance

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August 30, 2018, 11:59:24 PM
 #4

Survivorship bias is strong with billionaires. They claim you can get where they are by working hard but a lot of people have tried and failed.  Most of them refuse to admit luck played a part in their lives. Our lives are completely random and luck is a HUGE factor.
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August 31, 2018, 12:55:32 AM
Last edit: August 31, 2018, 01:08:36 AM by STT
 #5

You are lucky just to be born in a nice country, I wont disagree but also mostly to get as far as billions takes more.    A lucky start can be ruined by poor actions and the need to do nothing as they are already rich, I think mostly anyone who increases their wealth by that extent is likely created their own good luck by building on wealth with good actions.

Most people born into comfort lack the drive to build on good fortune and turn it into a massive amount.   Its probably not a great coindence that Warren Buffet grew up in the great depression, he cites alot of influences but he must have seen alot of failures in his community before recognising a profitable firm.    
Its also pretty cliche the rich child who wastes it all.   A good risk taker understands when he is lucky and when to take the winnings off the table, an ungrateful person does not know the true worth to many things and loses alot of it like sand through the fingers :p

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August 31, 2018, 05:29:50 AM
 #6

You are lucky just to be born in a nice country, I wont disagree but also mostly to get as far as billions takes more.    A lucky start can be ruined by poor actions and the need to do nothing as they are already rich, I think mostly anyone who increases their wealth by that extent is likely created their own good luck by building on wealth with good actions.

Most people born into comfort lack the drive to build on good fortune and turn it into a massive amount.   Its probably not a great coindence that Warren Buffet grew up in the great depression, he cites alot of influences but he must have seen alot of failures in his community before recognising a profitable firm.    
Its also pretty cliche the rich child who wastes it all.   A good risk taker understands when he is lucky and when to take the winnings off the table, an ungrateful person does not know the true worth to many things and loses alot of it like sand through the fingers :p


Yes, there is much that seems correct in what you write.  Hard work, proper assessment of risks, personality (and other characteristics of many rich people, both that I know and have read about) all matter a lot.  The converse is also true, that many who are comfortable at birth or young typically lack the drive to exceed "bigly".

Also, yes re your observation that a canny person who had some luck will "take some off the table" after a windfall.  Yet, such a "canny" person may not go on to become a billionaire... (Taleb mentions dentists who do pretty well, but do not become really, really rich).

In my own case I was born into a rich country, and even to a reasonably well-off family.  THAT was luck.  Not very many people are lucky in that way. 

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August 31, 2018, 07:49:44 AM
 #7

N. N. Taleb has made several important contributions. He is also known for the concept of antifragility, which is an important characteristic of a decentralized system -- such as Bitcoin.

I invite everyone to explore some of these ideas, perhaps along the lines of the Martin Armstrong thread.

Another idea is that Black Swan events cannot be predicted by analyzing the past. People have a tough time with that one.

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