Over Thanksgiving break, I finished reading Nassim Nicholas Taleb’s Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life. While the book uses the financial world as the basis for its illuminating look into the world of luck and our perceptions of it, the lessons it imparts are valuable for evaluating our own experiences with chance and volatility in every day life.
The book looks at how we determine what we attribute to luck and what we attribute to our own skill and ambitions. The view can largely be condensed to the old notion that “success has many fathers; failure is an orphan.” Too often success is attributed to perceived skill whereas unseen (or, more likely, misunderstood) factors have played a large part. Conversely, failures are attributed to unexpected and completely unforeseeable large impact outliers in every day events. Therefore, the human mind rationalizes success as doing something right and failure as something that was propagated by randomness but is thought to be foreseeable in hindsight.
This is condensed into what Taleb refers to as the “Black Swan Event,” alluding to the aged assumption that all swans are white because no black swans had ever been observed up to that point. The appearance of a black swan would be a surprise, a complete upheaval of the assumption that all swans are white, and would lead to later rationalization that its appearance could’ve been somehow predicted. While this concept is elaborated in greater depth in his later book The Black Swan: The Impact of the Highly Improbable, its implications play a large part in the lessons he imparts in
Fooled by Randomness.
Part 1 and 2 discuss rare events and the “survivor effect” of being told the story of those events only by those who survived them, whether they survived due to skill or luck. While I will not go into depth about his discussions of both of these, I will say that they are incredibly interesting discussions that made me reevaluate the way I perceive both success and failure as well as life in general. Part 3 was perhaps the most striking of the book, ceding that there is no way to conquer randomness and our reactions to it – we can only make ourselves aware of the way it impacts our lives in order to avoid being fooled by chance.
I would highly recommend the book even if finance is wholly uninteresting to you. Whether you agree with its premises or not, Taleb presents his alternative opinions in a mostly easy-to-read, often humorous, and informative way that makes Fooled by Randomness one of those rare and excellent reads that leaves a lasting impression.