Book Review – Fooled by Randomness (N. Taleb)

In One Sentence:

Fooled By Randomness explains how luck, uncertainty, probability, human error, risk, and decision-making work together to influence our actions, set against the backdrop of business and specifically, investing, to uncover how much bigger the role of chance in our lives is, than we usually make it out to be.

Recommended Summary: The Swedish Investor – Fooled By Randomness (By Nassim Taleb)

Author:

Nassim Taleb is the original, idiosyncratic mind behind Fooled by RandomnessThe Black Swan, and Antifragile, a bestselling series of books on the nature of complexity, randomness, and a world where rare events dominate the landscape. He is also, by far, one of my favourite authors and his work has impacted my thinking massively.

While he has a Wharton MBA and a PhD from the University of Paris, he frequently eschews academia in favour of autodidacticism. Through all his interviews and books, his personality and unique heart shines through (along with a stinging disdain for economists).

My favourite quote by Taleb would have to be a tie between one of the two below:

“This is the central illusion in life: that randomness is a risk, that it is a bad thing.”

And

“But it remains the case that you know what is wrong with a lot more confidence than you know what is right.”

Review & application to my thinking:

There have been few authors with as much an impact on my thinking as Taleb. His work popularising probabilistic thinking and bringing awareness to the fragility of many existing systems is, combined with Pabrai’s work, the inspiration for much of my investing approach. Explicitly, the use of Monte Carlo simulations, thinking in terms of bets and factoring for uncertainty and/or tail risks are something I have borrowed directly from his work.

The book, Fooled by Randomness, is rather foundational in understanding the need for such thinking. In it, Taleb unpacks some of the rationale underpinning the belief that “the world is far more random than we think”.

I would cite this book as an absolute must-read for any involved in decision-making and would strongly advise following it up with his other books in the Incerto series (especially the Black Swan and Antifragile).

I admit I am incredibly ignorant of much of the randomness around us, hence studying Taleb’s work has become somewhat of an obsessive interest. There is a lot I have still to learn, but his work has been very helpful in setting me on a path.

Top 3 Takeaways:

  1. Risk and randomness are not the same thing. Risk is loss, randomness is fluctuation.
  2. The world is so much more random than you think – your brain is designed to retrofit a story over randomness so unless you actively look for it, most of the time you won’t even be aware of how large a role luck played.
  3. Good decisions are not about avoiding risk, but about making sure your bets are so skewed in your favour that the economic value (probability*payoff) of the downside is minimal and the upside dwarfs it in comparison.

Cheers all! Hope you’re having a stellar day.

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