The Hidden Role of Chance in Life and in the Markets
by Nassim Nicholas Taleb
Summary
In this book Nassim Taleb teaches us some lessons on how randomness affects our lives, and particularly his as a trader. As humans, we derive patterns from just about everything. Yet often times randomness can explain a majority of why something ended up the way it did, or at least randomness is not factored in at all even when something we are looking at is mostly noise.
This is an incredibly thought provoking book exploring the fallacies in our decision making due to lack of accounting for randomness.
Contents
One – If You’re So Rich, Why Aren’t You So Smart?
In this chapter Taleb introduces us to two traders (Nero and John) on the opposite ends of the spectrum. One is a very risk-averse trader who has been consistently slightly above average, and the other a hot shot neighbor who has had major success as a trader recently. When a black swan event (or similar) happens, John eventually loses his shirt while Nero, having accounted for the risk, did not.
Two – A Bizarre Accounting Method
We often follow the path that winners took because of survivorship bias — we only see the successes and not the failures.
Three – A Mathematical Meditation on History
Four – Randomness, Nonsense, and the Scientific Intellectual
Five – Survival of the Least Fit – Can Evolution be Fooled by Randomness?
Six – Skewness and Asymmetry
Seven – The Problem of Induction
Eight – Too Many Millionaires Next Door
Nine – It Is Easier to Buy and Sell Than Fry an Egg
Ten – Loser Takes All – On The Nonlinearities of Life