Fooled by Randomness

I respect Nassim Nicholas Taleb and he is one my favorite modern philosophers. In Taleb’s vocabulary, a Black Swan is an event of very low probability but that has severe consequences. In 2020, I haven’t gone out as such but this pandemic somehow caught up with me — I tested positive for Covid on 31st March 2021. It was always a question of when given the prevailing conditions. This personal Black Swan has given me a recess from my work life and to mark it, I started reading Taleb’s Incerto series with Fooled By Randomness (my second read of this book).

This is quite an interesting book. The main gist is that people don’t attribute their success to luck (or randomness) and they mistake luck for skills. Taleb provides many scenarios where luck dictates the play, especially in finance, business and trading. The book challenges the foundation of knowledge and mental models you have of the world and gives a probability based approach of dealing with life.

Taleb says that how the world works is quite random in nature because it is based on an infinite number of variables. For example, no one expected 9/11 to happen and it changed the modern world forever. The things we plan, we plan on the knowledge that is visible to us but there are certain events (Black Swans or tail events) that are highly unlikely to occur but they have severe consequences. These events can mar your plans forever so it is paramount to make room for these events such that they have as little negative impact as possible.

Some of my notes from this book -

1. Solon’s warning — Yogi Berra summed it up perfectly, “It ain’t over until the fat lady sings”. You haven’t witnessed all the possibilities of a time series event until it is over.
2. Denigration of history — A fallacy in which historians, gamblers etc feel that the sort of things that happen to others would not happen to them. Every man considers himself to be quite different, a matter that amplifies “Why me?” shock during diagnosis
3. The only way to develop a respect for history is by making yourself aware of the fat that you were not programmed to learn from it in a textbook format
4. Learn to differentiate signal from noise. Noise is everywhere and often camouflages signals
5. History is replete with hindsight bias and our brains are programmed to formulate chains of events
6. The wise men listens to the meaning; the fool gets the noise
7. Don’t evaluate a person or a thing on how intelligent it sounds but on the scientific measure of its knowledge of reality
8. Don’t get tricked by statistics at the first sight. Question them.
9. History teaches us that things that never happened before do happen. It can teach us a lot outside of the narrowly defined time series; the broader the look, the better the lesson. History teaches us to avoid the brand of naïve empiricism that consists of learning from casual historical facts.
10. An open society is one in which no permanent truth is held to exist. This would allow counter-ideas to emerge. The simple notion of a good model for society that cannot be left open for falsification is totalitarian.
11. Satisficing — optimizing every step in your life will cost you an infinite amount of energy. Let there be room for randomness
12. It’s good to be free of any path dependence in your beliefs. Your ideas can counter themselves.