Fooled By Randomness - a review of the author; Nassim Nicholas Taleb

Until the discovery of Australia, the existence of black swans was not even considered. Then it was a reality.

Until the Russian financial collapse, the two Nobel prize winners at Long Term Capital Management thought such events were statistically at zero. Then they lost their investors, and the taxpayers that bailed them out directly and by dilution of the dollar, trillions.

In the swan case it was not arrogance, it was ignorance - we all share in great ignorance, no problem. We make mistakes, we clean up the mess, we have learned something.

LTCM and its first team geniuses were both arrogant and ignorant. Their arrogance is slightly diminished, but they have probably not yet learned humility. After all, they won Nobel prizes due to their (incomplete & incompatible) models - their genius is obviously next to deity.

I had once tried to explain to a fellow options trader that options valuation models were developed for specific uses; short term floor traders, mid term hedgers, etc. This meant that by using unpopular views and assumptions, you could develop another model with different values - and perhaps have a valid money maker, for a while.

His response was "Do you think you are smarter than Nobel prize winners?" He then walked away smugly. I smiled sadly that he didn't wait for an answer.

"'Arrogance is Gods' gift to shallow people. Move on!"
Earl Nightingale

That was before LTCM imploded and almost took down the world financial system. Nobel finance prize winners do not believe markets are made by many personal rationalizations. People who are not predictably rational alone become more irrational in mobs. Whatever is considered an impassable extreme can become the norm, as extremes move beyond conception and "rational" expectations.

YOU are smarter than Nobel Prize in Economics winners; if you realize you could be very wrong; and if you are flexible when considering the future.

Simply stated, when individuals buy a car they usually do it for personal reasons, at a price that has compared available options. When individuals invest and speculate they do it in anticipation of others moving prices in their favor. You may be able to plot and anticipate the first. However, no one can consistently model how far or long socially accepted trends and moods will endure.


Let Dr. Nassim Taleb guide you in gaining understanding.

Happily, his works are much more enjoyable to read than mine.

Nassim Taleb helps us look inside major events that shaped and will shape our lives.

Human nature is to expect what happened yesterday will be what happens tomorrow. Generally this is true. But far more frequently than standard math based models would suggest - something different happens; something random.

We may not know what it will be, but the next day will be vastly different. We can prepare to adapt. We can understand that we may have to adjust to events beyond our expectations.

Nassim Taleb has even used that expectation of random unforeseen events to make himself wealthy enough to do what he loves. Notice the acerbic comments.