My second book review will be focused on Fooled by Randomness by author Nassim Nicholas Taleb. The author is a trader in the financial markets who uses his mathematical background to exploit price inefficiencies, especially when it comes to the probability of unlikely (or, using the term coined by Taleb in one of his later books, Black Swan) events. We will start off with the basics of the book, and then get into the 8-point rating and some big takeaways from the book. Again, this review may appear short and is intended to be so. Everything you need to know about whether this book will be worth your time should be included here.
Link to order on Amazon: https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Incerto/dp/0812975219
The Basics
Number of pages: 265
Time reading per page: 61 seconds
Implied amount of time to read the whole book: approximately 4.75 hours
Number of chapters: 14 (divided between three distinct parts)
Genre: Varied, contains content on investing, psychology, and mathematics
Intended audience: Everybody, those with some interest in the financial markets may take an even further liking to this book
Very Short Summary
The book takes an in-depth look at the role chance plays in people’s lives and particularly on Wall Street. The book emphasizes that people undersell downside risk, and love to attribute their failures to “chance” but reserve the right to attribute their success to their own greatness, rather than the more likely option, chance. The book forces the reader to take a realistic step back and look at themselves as parts of something that is rather chaotic in nature, and presents a new view on success, especially in the markets.
The 8-Point Scale
- Readability (8/10)
It does take a little bit to get used to the jargon that Taleb uses, but in general the book is very readable for the average person. He cites a good few academic articles, but provides incredibly intuitive visuals where necessary that allow readability to be much better.
2. Transparency (10/10)
The ideas that he presents are often quite straightforward, and Taleb backs them up with lots of evidence. He weaves together stories from his life with academic breakthroughs and commonplace examples to enhance the understanding of main ideas for readers. The example used of someone with $10,000,000 playing Russian Roulette versus someone with $10,000,000 as a dentist was a very intuitive way to think about how accounting is flawed when it comes to risk.
3. Applicability (8/10)
Taleb spells out some of the given people to be skeptical about throughout his work.
4. Excitement (9/10)
Many of the examples were very exciting due to the fact that they were not all that intuitive to begin with, but every page or two there is another a-ha moment through the examples that Taleb is employing throughout the book.
5. Importance (10/10)
Very, very important with regards to risk-taking and especially with regards to the financial crisis of ’08. Also, great for understanding some success or failure is due to chance.
6. Accomplishment (10/10)
You will feel smarter after you read this book, and the next time someone tells you about something that “can’t fail”, this book will make you think twice about that person’s general outlook.
7. Integration (4/10)
I would not say that this book is going to really change the way you live your everyday life. After, it is still good to take risks in certain areas, but just try to understand the downside in an accurate manner.
8. Idea-Shaping (9/10)
This book will change the way you think about random events, especially with respect to hindsight bias, risk, and people who think they know it all. A nice little idea that has stuck with me from Taleb: If your benchmark for downside is the worst outcome in history, you are missing the lurking possibility that what is coming could be worse than that. After all, the worst thing, when it happened, was worse than anything that happened before it.
OVERALL RATING: 6.8/8.0
Big Takeaways
- Randomness plays a larger role in our lives than many people are willing to understand or appreciate. It is good to be lucky sometimes, but understanding that you were or are lucky is a step in the right direction to not being fooled by randomness.
- The magnitude of events matters. If I can make $1 99.99% of the time, you should do it if and only if the magnitude of your loss in the .01% case is less than $10,000. Understand expected value.
- Absence of evidence is not the same as evidence of absence. Just because something has never happened before does not constitute evidence that the event will never happen in the future.
- Everybody can explain something perfectly when talking in retrospect. Take the financial crisis for example, and I am pretty sure this book was written before then, all the more reason to heed the advice.
- Using games can be a helpful way to understand the events of the real world. Taleb uses games in a good amount of his examples and they are a great introduction into thinking in a more probabilistic manner.
- Try to think about the things that might not be so obvious, especially when it comes to worst case scenarios. Just a general rule of thumb from reading this book.
Summary
After you read this book, you will feel more, yet at the same time less, knowledgeable about the world around you. At the conclusion of this book it can be assumed that you are less likely to be a fool of randomness in your own life. Taleb is a great author, and his other books, Skin in the Game, Antifragile, and The Black Swan will likely be reviewed at some point over the course of this series. Definitely recommend this book, especially if you are at all interested in things relating to probability and math, but even if you’re not the book will teach you a lot in a way that is easily digestible.
