[Book Review] “Fooled by Randomness: The Hidden Role of Change in Life and in the Markets” by Nassim Nicholas Taleb

September 18, 2020

I'm going to start by declaring that the more I read his books, I have found a certain personality/academic affinty with Nassim Nicholas Taleb. I tend to attribute this “closeness” to the fact that he is one of the few people that I have read recently who have written non-fiction in a way where the personality and style of the author really shines through. [I wonder how many fights he must have had with his editors...] The fact that he is also an avid humanities, philosophy and classics reader (yes, please!) shines through his book. However, I can see how people would be bored by that and would deem those references as pretentious or even pernicious to his core argument. I've heard many people say that in order for your argument to be effective with a wide audience, you need to make it as easy as possible (I don't think you always want/need to appeal to a wide audience). I'm pretty sure that Taleb wrote it in such a way where the book would find its audience and not à l'envers. After all, appeal and fame is not everything, according to him. Moreover, it would seem that he derived much more pleasure from writing it his way rather than conforming with editorial directions. In spite of the possible critiques that one could make to his style or the extensive usage of references to epistemology, philosophy or greek classics; if you are into those things (as I am), you will like it.

In a way, Taleb approaches the subject of randomness and probability in a very elegant way. He also really does take utter care in not giving you the slightest clue as to how he actually applies these principles to his work (as a “no-nonsense trader”) or in life (as a “part literary essayist”) besides some very broad ideas like “benefiting from black swan events or taking a trading approach that is deviced against our own psychological reward system. The above means that this is not a book for people looking for a direct formula that will make their lives (or their wallet) richer. This book, I'm sure, is for people interested in a stoic, skeptic way of thinking/living that want to hear how some of the Popperian, Solonian & Wittgensteinian arguments would apply to their systems of thought. However, these same people should not expect an in-depth analysis of these author's thoughts. Taleb uses them practically but also in a very familiar way – as if he was quoting ideas shared by these philosopher friends over dinner. Because of this, I'm happy he included a section called “a trip to the library” where notes and further readings are recommended. The teasers and philosophical punchlines serve to excite the reader enough for them to go into this section to profit from the wealth of titles quoted throughout the ~250 pages.

Taleb's ideas are really strong and well argumented but again the style employed means that the reader needs to be “okay” with following the author's train of thought (digressions and all) through the book. Don't expect this to be a fully linear, logically argumented disclosure of the arguments. And even though he derives some of his most interesting parallels and examples from classics and philosophy most of his arguments are rooted in behavioural economics, psychology and a strong understanding of statistics (read here Daniel Kahneman, Herbert Simon among other illustrious authors).

If anything, and I do not pretend to make a reduction of Taleb's arguments, I'd consider the following phrase as a summary of his thought: “We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract. Everything good (aesthetics, ethics) and wrong (randomness) with us seems to flow from it.” It is this idea that human psyche is inherently lacking in adaptation to understand an increasingly complex world where noise (a.k.a. randomness) is impossible to distinguish from causality. In fact, as I studied Political Economy and Public Policy, one of the paradigms that stuck with me is how it is most of the time it is impossible to device a way of measuring performance/causality for public policies or people. It is impossible for us to distinguish between one subject/project A that is inherently better but had bad luck versus one subject/project B that is inherently worse but had good luck; because we lack the methods to discount noise/luck/randomness. In this example, choosing strategy A is optimal every time but given noise (and our anchoring/narrative biases) we might end up believing B was better overall, generating a positive-feedback loop that transforms itself into a vicious cycle. Some wisdom mentioned by Taleb on these points: don't be married to your positions (e.g. if you bought a home for a 100 and now it's worth a 1000 and you wouldn't buy it for the current price, you are married to your position) and every day is a clean slate to make decisions.

Expanding on the issues above, one of the things that I like the most in life is out-growing ideas – or what other people would like to call “contradicting myself”. I don't believe we can successfully grow if we don't have our own internal battles and we allow ourselves the freedom to switch positions after we've evaluated new evidence (in spite of society looking at us as lunatics). In fact, Walt Whitman is from the same school as Taleb and I:

“Do I contradict myself? Very well, then, I contradict myself; I am large — I contain multitudes”.

And so is Nietzsche:

“Only idiots fail to contradict themselves three times a day”.

By and large this means that we are slightly less biased, we are more Popperian/Lakathonian (aka. more scientific; we are willing to change paradigms if proven wrong) but, most of all, we are freer to live how we want.

Taleb's book is an ode to knowing our own limits, the limits of science, economics and, the understanding that randomness plays a much bigger part in our lives than we care to accept or understand. But, every now and then it is also a life-manual based on the inverse idea that uncertainty and heuristics can prove very much useful to make day-to-day decisions: “we are meant made to live like fireman with downtime for lounging and meditating between calls under the protection of protective uncertainty”. As with everything Taleb, given his French education, he manages to strike nuance in a way that is palatable and not a contradictio in termini. We need to learn to live with the fact that most things, including randomness and uncertainty, cannot be fully prescriptive and linear. But remember, we are not wired to be okay with this.

See you on the next adventure,