Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets [Paperback]

The big ideas are simple. The usefulness of the book is that he shows you how we generally do not behave as if the simple ideas are true. The biggest idea is survivorship bias. It explains why my book reviews tend to be positive. I generally do not post a review unless I've read the entire book, and I tend to quit books that I don't like. So, my reviews are based on a sample that is infected by survivorship bias. I won't go into the other ideas (i.e., the problem of induction and "our genetic unfitness in the world") except to say that (i) the induction issue is arguably an extension of survivorship bias, so you may feel déjà vu here and (ii) the last section on the "human aspect of uncertainty" is the weakest section. This section really needs an editor to impose an organizing principle, and except for the touching, instructive conclusion, I thought is was one digression after another.

Don't expect any math or real depth in the statistics (an endorsing professor on the back cover says the book is "mathematically sound and...renders mathematics exciting for non-specialists." Deceptive endorsements are grating. There isn't any math in this book, to speak of!). However, the idea of survivorship is important enough to warrant a sincere recommendation of this book. How many books give you even a single idea that you can use forever? And, again, Taleb is very entertaining. I almost fell off my chair laughing when he recalls one the weekly meetings at an investment house, with economic strategists making all sorts of announcements and the rhetoric flying. He is so put off that he resorts to speaking a lot in hopes that he won't be invited back. Someone asks if he is bullish or bearish on the market, and he responds that he doesn't understand these words "outside of the their purely zoological consideration."

All that is wrapped in his idiosyncratic style. I have to say that I find his both charming and extemely arrogant. There is a deep philosophical point but it is too difficult for this.
HE did not tame his arrogance for this second edition

Also, Mr. Taleb is a bit difficult to warm to, although there are occasional flashes of wit and humor that help. For example, he is so proud of his personal achievements that he both disparages them (he is ashamed of his Wharton MBA), and uses them as proof of his superiority of almost everyone (he read a lot at the library). He also has some strange peccadilloes such as his passionate and disproportionate dislike of George Will because he interviewed Robert Shiller (Taleb's friend and author of "Irrational Exuberance") in a rather feckless manner.

In the second half of the book he does explain some interesting phenomena about human psychology and randomness in interesting ways, but he goes completely overboard on certain points. On page 173 he states that Khaneman and Tversky have exerted the most influence on economic thinking in the past 200 years. Come on! Name any major economics department that has become behaviorist in any major way. (Taleb might find such resistance to acceptance a proof of concept - but people weighing evidence seriously would find it a chink in Talebs case.

I think the reality is that what Taleb points to is important and does exist, but that it is something like a second order effect in the big scheme of things. It may matter an extreme amount in the narrow world of options trading where Taleb indicates he lives, but for most of us it is a minor issue. Not one of no consequence, but not a determinative effect in the broad sweep of our lives.

So, I continue to look for a really good book on this topic. If you know of one, please email me with information about the book.