• 12 Mar 2007 at 11:34 AM
  • books

Fooled by Randomness?

Fooled by Randomness cover 02.jpgDespite what you might hear, Fooled by Randomness is not the perfect book. But it’s damn good. In particular, we’re fond of the Nassim Nicholas Taleb’s skepticism of the way success is often attributed to skill when luck is a more plausible explanation. (And this works the other way, where business failure is blamed on corruption or lack of talent rather than luck.) If more business writers read Fooled by Randomness we might get a lot less of the type of stories asserting that, say, a hedge fund succeeded because its managers were geniuses or failed because its managers failed to provide adequate controls.
We’re actually a bit ashamed by our affection for Fooled by Randomness. After all, it’s praised by nearly everyone and joining any particularly popular club of enthusiasts grates against our fanatically contrarian souls. So we hunt around for critiques of the book, hoping someone will save us.
Gary North’s critique of Fooled, however, kind of does the opposite. He argues, more or less, that Fooled is bad because it’s doesn’t like Warren Buffett enough and likes the theory of evolution too much. You see, according to North, it is luck that makes traders rich. It’s God.

What Taleb identifies as luck, I identify as the providence of God. He is a would-be Roman skeptic of the Stoic variety. I am a Christian.

Hmmm. This reminds us of another theory of salvation that we came across last year.
How Mr. Taleb Got Utterly Fooled by Randomness [LewRockwell.com]

Comments (34)

  1. Posted by Finbar taggit | March 12, 2007 at 12:22 PM

    Success comes from being tall, gorgeous, charming, having strong eye contact and straight teeth (being a Brit I fail on the last count).
    That and being a good hypnotist. Lead and others will follow.
    The rest is all luck.

  2. Posted by Anonymous | March 12, 2007 at 12:50 PM

    Rumor is that Taleb launched a derivatives hedge fund based on his ideas about tail events and failed pretty badly.

  3. Posted by anonymous | March 12, 2007 at 12:54 PM

    I had a “tail event” on Saturday night.

  4. Posted by Anonymous | March 12, 2007 at 1:13 PM

    Those who are successful claim skill. Those who fail credit luck. Truth is that success comes from your ability (skill) to recognize opportunities (luck) and act upon them.

  5. Posted by Byrne Hobart | March 12, 2007 at 2:02 PM

    Don’t forget that he is proud of how many typos he can get away with (scroll down to 3-II)

  6. Posted by Anonymous | March 12, 2007 at 2:59 PM

    My understanding on Taleb’s HF was that investors didn’t like the monthly bleed while they were waiting for that tail event payoff. Taleb was basically buying insurance, and that’s not free.

  7. Posted by Anonymous | March 12, 2007 at 3:00 PM

    You should check sources -Taleb did indeed not bleed and did not shut down

  8. Posted by Anonymous | March 12, 2007 at 3:14 PM

    Taleb DID bleed theta on his options trades. His hedge fund had the same PnL as a fund that goes out and buys a boatload of lottery tickets every month, telling investors that their lucky break is comming any minute now.

  9. Posted by Smart Guy | March 12, 2007 at 3:29 PM

    “His hedge fund had the same PnL as a fund that goes out and buys a boatload of lottery tickets every month, telling investors that their lucky break is comming any minute now.”
    You mean someone already tried this? There goes my big idea!

  10. Posted by Anonymous | March 12, 2007 at 3:30 PM

    You are presenting matters as fact. Please IDENTIFY your sources.

  11. Posted by Anonymous | March 12, 2007 at 3:34 PM

    You know SO LITTLE about TALEB, his performance. Give me tangible sources. SHOW ME NUMBERS. Go ahead, SHOW ME NUMBERS and where you got them from.

  12. Posted by Anonymous | March 12, 2007 at 4:12 PM

    Where the hell am I supposed to get audited return statements for Taleb’s fund? I’m just telling you what I heard. And the numbers I heard add up very well with Taleb’s “buy the fat black swan tails” trading system.

  13. Posted by Anonymous | March 12, 2007 at 4:17 PM

    Then you need to state that you don’t know anything about TALEB’s strategies and their returns and that you are irresponsibly conveying them. You are conveying “hearsay” as facts.

  14. Posted by anonymous | March 12, 2007 at 4:43 PM

    Taleb, is THAT you?

  15. Posted by Anonymous | March 12, 2007 at 4:52 PM

    I am a TALEB investor. So provide NUMBERS or go spread rumors about extraterrestrials

  16. Posted by Anonymous | March 12, 2007 at 5:00 PM

    To the incensed Anonymous:
    Do you have a source? Can you quote us, say, annlzd Sharpe and current AUM?

  17. Posted by Anonymous | March 12, 2007 at 5:01 PM

    Here’s a fat Black Swan for you, Anonymous. Taleb’s Empirica LLC shut down has a hedge fund a long time ago. I don’t know what you’re investing in, but it sure as hell isn’t a hedge fund. Taleb is now an insurance salesman / fund of fund manager. As much as I dislike Taleb, I must admit that starting a fund of funds was a great idea: if you’re “unlucky” enough to have failed at running your own hedge fund then what better way to keep those fees comming than to start a fund of funds?

  18. Posted by Anonymous | March 12, 2007 at 5:04 PM

    provide numbers about TALEB. show them to me. numbers. prove that he “shut down”

  19. Posted by Anonymous | March 12, 2007 at 5:04 PM

    You could be both an investor in Empirica and Mr. Taleb himself. The two conditions are probably not mutually exclusive.
    I will say Empirica isn’t listed in the 3 major HF databases I’m subscribed to. Now, that could go either way for the fund’s performance, but I get the impression it’s in liquid asset classes, and thus not closed on capacity.

  20. Posted by Anonymous | March 12, 2007 at 5:05 PM

    This guy is quite venomous. what is the reason behind your hatred?

  21. Posted by Taleb | March 12, 2007 at 5:17 PM

    It’s all true. I was fooled by volatility.

  22. Posted by B.B. | March 12, 2007 at 6:19 PM

    Hi there are you John in the Book Fooled by Randomness?

  23. Posted by B.B. | March 12, 2007 at 10:03 PM

    The guy who whote “As much as I dislike Taleb” –did you ever had an encounter with him. Why do you hate him?

  24. Posted by Anonymous | March 13, 2007 at 1:03 AM

    BB, you can find various Taleb lectures on the Internet. You can find one in wilmott.com audo/visual archive, where Taleb’s main theme is that everyone but Taleb is stupid and everything but Empirica LLC PnL is totally random and exposed to obscure fat black swan tail events. The bottom line is that Taleb has a poor understanding of philosophy.
    As far as paying Taleb 2 and 20 goes, I can buy boatloads of lottery tickets at a much lower cost and I have a huge variety of lotteries to pick from (ranging from a few dollars per ticket to several hundred thousand USD per ticket). If you are paying Taleb 2 and 20 to buy far OTM options and ‘risk free’ bonds then, as they say, a sucker and his money are lucky to get together in the first place.

  25. Posted by B.B. | March 13, 2007 at 7:32 AM

    Does TALEB say that everything is random?

  26. Posted by Anonymous | September 25, 2007 at 3:02 PM

    Did anyone here actually understood the book? There is luck, and there is luck. It’s a philosophy, not a math problem. Come on.

  27. Posted by Tim | October 1, 2007 at 1:22 AM

    What he is saying is that your success is lucky based on averages – and the more extreme your luck the more unlicky people with opposite postion there are.

  28. Posted by Carlos | November 15, 2007 at 12:41 AM

    Mr. or Ms. Anonymous, One defect in your question is hidden in the word ” understand ” .
    Remember what one thinks one understands could very well be an Illusion and probably is. Next defect: A “Math” to measure the outcome of our lives and how we got there, may not be known to us yet.
    Much like measuring the area of a circle was not known to the Cro-Magnons, so to state that its not a math problem….. You do the Math ;) Rephrase your question and I’ll see if I can help you.

  29. Posted by Kazutaka | August 25, 2012 at 5:45 PM

    Johnette, My prayers are with you alywas. I will never forget the generosity that poured out from your heart as you addressed the ’04 WOG Conference. Your poignant account of Simon’s death, and your powerful witness to God’s mercy, have made an indelible mark on my faith. May Your dear son, Simon, rest sweetly, with Our Lord and Our Lady, all the Angels and Saints, in Heaven. May you, Johnette, and your family, be blessed! Love and prayers, A very grateful sister in Christ, Teri Shehwen

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