Fooling Around with Randomness

About a book: Fooled by Randomness, by Nassim Nicholas Taleb

Although Taleb (very arrogantly) stated that unsolidated reviews, especially by unqualified people, are entirely unwelcomed, here’s me talking about his book anyway. Since he has also (quite accurately) pointed out that any measurements of a table done by a badly calibrated ruler is equivalent to using the table to measure the ruler, I will blatantly write as the ruler being measured by the table – I’ll state why I like his book. In no particular order,

I enjoy the subtleties

The Table that out-measures many Rulers – Taleb must be a table right? And definitely, a stool won’t be an appropriate object to use in this analogy.

Nero Tulip, the trader who outlived many high-flyers in a treacherous trading life - anything to prove, Nassim Taleb?

I agree

“I despise the moralizers beyond anything on this planet…” Well there might be things or people worse than moralizers, but moralizers are about the most irritating (and probably misguided) people around. If moral values were so clear cut, “controversy” won’t be in our dictionaries.

He’s skeptical about scientific findings. I love scientific findings, some are funny to quote, most sound intelligent enough to appear in reports, but will I bet my life on a published statistic or correlation? Hell no. The “scientific proofs” that support the hypothesis are the ones that will be published. Statistics can be calculated/interpreted to fit a requirement. Most quantified correlations are not meaningful, those that are will already be logically obvious.

He hates self-help books and people who tell you to brush your teeth. If I thought self-help books will actually help me, I would listen to my mother’s nagging.

Hindsight bias could be more rampant than we think. I always listen to what people attribute to their success with a pinch of salt. I’m especially skeptical when people tell me ”Warren Buffett is doing it/has done it too”. Taleb attributes a lot of insanely successful projects to randomness (black swans). Well, I believe randomness/luck definitely has a large part to play. But even if luck is not the reason, what we (on hindsight) think is the reason behind our success may not really be the reason. Most of the “how I became successful” cannot be repeated in the same environment many times to test its validity. And we certainly cannot use the strategy in everchanging real life situations while expecting to obtain the same success. So unless it’s some down-to-earth advice like “work hard” or “the chances of getting a job increases dramatically after you send in an application”, fancy strategies generally don’t stick with me.

Taleb argues that the eventual performance cannot be used to judge the validity of the strategy. It’s not very intuitive, but if you think about it, certainly true. If I bought a lottery ticket and won, does that mean I should always buy loterry tickets? Sure, not all things in life are governed by pure randomness like the lottery, but the popular advice of “taking chances” is dangerous advice. By starting a niche business, I could either strike it rich or be bankrupted. Who knows the chances? Although ships are not made for staying in the harbour, they’re not meant to be crashed either.

I found out that I could be…

An above average driver – There’s that frequently quoted proof of self-delusion where a (possibly mythical) survey showed that more than 50% of people believe that they are above average drivers. Turns out it’s entirely possible. If most people are good drivers, but there exists a small amount of impossibly bad drivers (say, we measure the driving skills of drunk drivers), then the average could be something that more than half the people are above. (Taleb didn’t talk about drivers, he showed how more than 50% of the individuals can be wealthier than average). Why didn’t I think about this earlier? I could have outsmarted some professors.

Smarter than my doctor – Here’s a probability question that actually appeared in one of my notes (but I didn’t pay attention to it because I was too turned off by the mathematical notations). If the probability that a diagnostic test says that you have a disease when you don’t is 5%, and 1 in 1000 people in a population has this disease, what’s the probability of you having the disease if the test says you’re positive? According to Taleb, most doctors think it’s 95%. It’s not. The answer is actually less than 2%, ask your doctor to rerun the test.

I enjoy the honest arrogance

Despite repeated mentions that his only advantage is in knowing his fallibilities and weaknesses, there is no attempt to mask how much he thinks he’s better off than a lot of people. It’s funny how those people who believe that “only fools are sure of themselves” are so sure of skepticism.