Fooled by Randomness
by: Nassim Nicholas Taleb
Risk, uncertainty, and probability play a hidden role in human decision-making in life and in the markets. The only thing truly controllable, is one’s own behavior.
A timeless insight into how luck is perceived in life and business. Set against the backdrop of the world of trading, where luck is conspicuously mistaken for skill, Taleb challenges issues related to human error and randomness.
In narrative style, Taleb presents an array of characters to illustrate the significance of chance. He sets forth that humans are often unaware of the existence of randomness and quick to search for causality and explainability. In behavioral economics, there are several examples that demonstrate how a lack of awareness of innate biases leads to inefficient decision-making processes, perhaps none greater than the Survivorship Bias. Here, the standouts and winners in the markets are glorified and assumed to have demonstrated model decision-making and behavior. By weighting excess value on the result, which is invariably driven by chance, the masses and individual leaders forget the huge number of losers.