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Summary of Fooled by Randomness 

4.5 . 3950 reviews

Short summary

Randomness often fools us as humans. We have a tendency to provide rational explanations to events that are purely random or based on luck. In “Fooled by Randomness”, Nassim Nicholas Taleb — a Lebanese-American essayist, scholar, statistician, and former option trader and risk analyst, whose work concerns problems of randomness, probability, and uncertainty — proves that “Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.” This summary reveals how to assign the right value to what we know and to give proper estimation to the possibility of being wrong.

Table of content

  • Summary of Fooled by Randomness
  • About the author
  • What is Fooled by Randomness about?
  • Who should read Fooled by Randomness
  • Topics in Fooled by Randomness
first key point

Humans have a tendency to give credit to skill and determinism where luck and randomness are responsible for results

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This tendency is more pronounced in the stock market where certain investors are considered more competent than others as a result of their lucky streak. Their successful investment portfolios are easily attributed to their competence rather than sheer luck.

It is true that some professions require being skillful to achieve success. For example, luck doesn’t help you to have a long career in medicine or law. You need to have training and skill to succeed.

Where it concerns the stock market, there are no real rules. Luck is the operative term here. There is an inherent randomness in the stock markets that make it possible for an investor with little or no skill to be just as successful as a skilled investor.
Statistically, 10,000 unskilled investors have a 45% chance of being profitable annually.
This probability reveals that you’re likely to achieve more success in the stock market by investing based on a coin toss.

From these unskilled investors, we can expect almost 200 of them to record profits every year for 5 years. Consequently, we confer competence on these investors when in reality they simply made wild guesses and were lucky.

The long run eventually reveals the poor choices they have made. That’s why some investors record devastating losses where they lose everything in a quarter after a streak of successes in the preceding years.

The rest of this summary explains our misconceptions of randomness as determinism, why we constantly fail to appreciate the impact of randomness, and how we can deal with randomness.
second key point

The fact that change is constant shows that there is no theory that is foolproof because the next observation may disprove the theory

Empirical science goes through a process known as an induction to establish theories and generalizations. This process depends largely on observations. For example, someone might infer that all goats are black because they have observed hundreds of goats and they were all black.
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third key point

Human reasoning is usually dependent on context and we tend to set up simple rules to justify our line of reasoning

fourth key point

Emotions have the capacity to help you make good decisions and they can also help you make poor decisions

fifth key point

The way we interpret rare events is inherently poor which makes us unprepared for unexpected events

sixth key point

Paying attention to rumors of war and the noise made by the media is not a panacea to the problem of randomness

seventh key point

Conclusion

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What is Fooled by Randomness about?

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Do you find yourself staring at your computer for long minutes, unaware of time slipping by? Do you enter a room and suddenly cannot remember why you stepped in the first place? Is it a herculean task for you to sit through ten pages of a book without reaching for your phone? If yes, your focus needs some work and fast.

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