I must first say that I am not a trader or a mad scientist trying to tell were the stock market is heading. I am just an engineer and an entrepreneur for quite a while. Being interested by stock markets I read Taleb's book and found it rather annoying. Not because of the points Taleb is trying to run home, nor because I certainly agree with the fact that a lot of ?Masters of the Universe? are mere mortals with a little more luck than others - You see the same happening among entrepreneurs - No, the reason is the tremendous amount of platitude that fill the book from page one.

Over the course of the past 15 years I have had some success and some failures but overall I'm making rather good and I am happy with my life. I believe I was a bit lucky on average. So why did I need to react on this book?
Taleb's tone is arrogant as if he was revealing some great information to all the blind in this world. He also thinks that the world starts and finishes with the stock markets and that the rest is a sort of decoration to entice the otherwise dull trader's world.
Now let me point out to some mistreated scientific laws.

Survivorship bias caught Taleb right in the face

At page 159 Taleb is mentioning a supposedly embarrassing experiment with doctors being asked about the probability of a patient being struck by a given disease. As it comes out in Taleb's book, only one out of five professionals (doctors) got the answer right, the answer was 1/51. Taleb therefore concludes that you should's trust your doctor when he tests you for a disease, given (in this particular example) that you have roughly 2% chance of actually being sick. Well, I disagree ferociously!
If, like Taleb, you spend your time reading reports from the pharma industry on how they test the quality of a new drug, instead of trying to imagine what is the every day life for a doctor in his practice you are biased, big time. Let me explain : If you take randomly 1000 people knowing statistically that one is stricken by that particular illness and put them trough a test that is accurate (minus false positives) at only 95%, you get indeed 1/51 probability. Does this correspond to a real life situation?
No! In real life, say we have 10% hypochondriacs and say this particular illness hurts (which most do), so what is the population you would find in the doctor's practice? 90% of the people who go to a doctor and feel sick are actually sick. Say a doctor treats a thousand patience in a given period of time, 900 will be sick and 100 will not. The test will find 905 people stricken out of a 1000 patients which translates into a 90.5% chance of being sick once you decided to go to your doctor's practice because you don't feel well. This changes the odds that your doctor might be right after all, doesn't it ? On this illustration I must say I don't doubt doctors are not very good at mathematics but some of those having taken the test maybe just extrapolated live experiences from their everyday dull life (as we read in Taleb's book).

Using Taleb's filtering method would have gotten me an F in electronics class

Though I understand what Taleb is trying to run home with the example of page 167, what he says is plain wrong. To dissociate noise from signal, you don't do amplitude filtering but frequency filtering. You take your signal function as amplitude over time and do a Fourrier transform to get amplitude over frequency, the noise's frequency being at least a factor of scale higher than the signal itself, with an in-band filter you can keep only the band of frequencies around the signal and get rid of the noise. I would advise Mr. Taleb to read an electronics book sometimes to get his basics right.

Final words

Having spoken with friends in the banking business (that is a Swiss platitude), I must say that Taleb's central point is certainly interesting and revealing for them and I give the book some credit for that. Nevertheless, the constant bashing of others, the less than rigorous approach, some too quickly drown conclusions make me say the book lacks credibility. My final words are for Mr. Taleb to think about: In French we say ?La culture c'est comme la confiture, moins on en a, plus on l'etale? (culture is like jam, the less you have of it, the more you spread it out thin).
Solon would appreciate, he who saw the future of Croesus in the bowels of a bird!

Pierre Kladny


Ironically, Opportunity Lost   December 31, 2002
 166 out of 191 found this review helpful

I'm very much of two minds about this book. There's little need to offer further comment on:

1. The author's ego (in one paragraph on page 59, he uses the perpendicular pronoun 7 times; the possessive first person another 5); or his hyperbolistic writing style: this might be too easily dismissed as an ad hominem attack.

2. The many glaring contradictions in this book: they appear so often (sometimes in the next sentence), they can hardly be viewed as a random event: this would take too long, and any intelligent reader can spot them.

3. The superfluous material: with so much impertinent opinion found between the covers, this would take too much effort.

4. The missed opportunities: another author can capitalize on this.

5. The delicious irony between the thesis and the content: this is for the discerning reader to perceive and enjoy.

If people wanted to be as nasty as Taleb is in dismissing those he disagrees with, they could use a subject line like "Clearly, not a Swan Song," or "A Highly Masturbatory Essay" or "This book is as fat as the argument is thin".

While there is much to complain about in this nauseatingly self-centered book, so filled with noise and so little signal (seriously estimated at 85:15), such comments would miss the point: this is actually a highly original work and is certainly thought-provoking. Although I give it only 2 stars, it's still worth reading, if only to argue against. A three-paragraph summary of his 200 pages follows:

1. Thesis: Today's virtual world measures success without sufficiently discerning luck from skill. Intelligence alone is deemed the necessary condition for wealth.

2. Antithesis: Too much of what is widely held to be worldly success should actually be attributed to luck; i.e., results hidden inside the vicissitudes of random variation. This "common sense" approach is naive because it fails to establish the link between cause and effect and ignores the effect of variation, which, in one of its tails, can produce extraordinary results. Taleb explores the problem of induction and confronts the non-linearity of regret.

3. Synthesis: The trick is, of course, to determine post facto, what was random and what was skill, and more critically, to assess the nature of risk going into a decision. Mistakes in these areas can be extremely costly. Beware of the tails, especially if they are fat. If you want to be probabilistic, don't bet more than you can happily afford to lose. Question everything. Be humble. Accept adversity with good grace.

This is an interesting thesis; too bad Taleb doesn't focus on examining the evidence instead of talking about himself and offering unsupported opinions. He dabbles with epistemology, but equivocates on whether knowledge is arrived at by rational or empirical means. Despite frequent and inappropriate abuse of the word "clearly," he doesn't clarify the ontological considerations that lie at the heart of this book: sufficient cause and non-contradiction. Though he's personally fond of the Monte Carlo technique, many of us could be spared much of that bother by answering a few simple questions:

1.What is the worst-case scenario?
2.What is the best-case scenario?
3.What is the most likely scenario?
4.How confident am I in the assessments?
5.What can I afford to lose?

The author raises the work of Kahneman and Tversky, but hardly surveys it; the work of other key economic thinkers is ignored: Thaler and Arrow come to mind immediately; many others should appear but do not. No wonder Japanese librarians classify this work as literature: it's little more than an essay, largely devoid of footnotes or a meaningful bibliography.

Being unlettered in mathematical sciences, I ought to be cautious about questioning his math, as simple as it is, but must nonetheless question both Taleb's assumptions and his logic in the few examples he provides. He rails against "pseudo-science" but dabbles happily in many disciplines in which he lacks formal qualifications, jumping from lily-pad to lily-pad, seemingly unaware that his dilettantism is evident to even the fellow layperson. Despite his professed aversion for "borrowed wisdom," it abounds in this tome. Taleb's editor took a vacation, especially towards the end of the book, where there are many errors of punctuation.

Incidentally, in one of many delicious ironies of this book, Taleb uses the very Hegelian logic he rails against to make his point. It would be interesting to see John Horgan (he of The End of Science fame) interview Taleb. The ultimate irony is that Taleb has actually co-written a concise account of his thesis in 26 pages at his own web page.

Intriguingly, in some of the interviews also linked to his web page, he comes across as being lucid and pithy, and also a polished and gracious reviewer. Some of his other writings show a keen insight into human and abstract sensibilities. Sadly, the same cannot be said of this book, which appears to be more a transcript of a session with his psychoanalyst. This is an opportunity lost. A severe edit of this book could likely bring it up to the level (5 stars) for which it has the potential. But it's nowhere near there, yet.


Managing Unpredictable Variations in Order to Prosper!   September 19, 2001
 114 out of 140 found this review helpful

Every person who is interested in investing should read this book!

In investing, few can tell the difference between being lucky and smart. Being successful in the short term can come from either source. If it is coming from unrecognized sources of luck, however, the behavior that the investor associates with success can sink the ship. The cautionary tale of Long Term Capital Management is cited in the book as an example of this point. yIf youyre so rich, why arenyt you smart?y is the wonderful reversal here on the old saw.

I see this effect all the time in my consulting practice with helping companies understand how their decisions affect their stock price. A large percentage of people feel that they know all the answers when their stock price is rising. They keep doing the same things when the stocks are falling. Few survive to still have top jobs when the cycle shifts again. Then a new group of self-confident people take over who often donyt know any more than those who preceded them. Itys just that their track records look better.

Fooled by Randomness will help make you more knowledgeably humble about what you can expect to accomplish with investments. Not only do fewer than one percent outperform the market averages over long time periods, the ones who do are probably often being aided by luck as well. yGet thee to the index funds as soon as possibley is the message that most should take away from this book. Better yet, buy them when multiples are low!

The bookys fundamental point is that there is tremendous volatility in any investment. Ignore that volatility to your peril.

At the same time, you should be cautious about how well you understand the volatility. Stocks at their lows can still go to zero. There are all kinds of events that can happen, that have not done so yet. When they do, throw out all the old rules of investing. The terrorist attacks on the United States last week are probably an example of this. So each investment must be made as though you could be totally wrong. This means that you have to manage your risk exposure to events you donyt even know how to expect.

I loved his example of the joint probabilities of having a rare disease if you get a positive result on a test for that disease. Even most doctors apparently donyt know how to evaluate that one. If even well educated people cannot quantify two known risks occurring simultaneously in their own field, how can investors be expected to make good decisions?

Dr. Taleb has some very good advice for how to handle the psychology of being able to do this. He upholds the Stoic ideal -- ythe attempt by man to get even with probabilityy which encourages ywisdom, upright dealing, and courage.y This means not chasing the latest investment fad or fashion, not looking at your investments very often, and being open to both sides of any idea (it could go wrong as well as right --what are the consequences of both?). I especially liked his idea of watching CNBC with the sound off so that the yexpertsy seem humorous and you are less likely to hear and follow their advice. Even more poignant was his advice not to live on Park Avenue where living with all of the arrogant, temporarily lucky can make you feel small. Instead, live somewhere that the results of your cautious approach will cause you to be the envy of all.

Dr. Taleb impressed me with his willingness to tell stories on himself about how quickly he can become superstitious when things are going well, take on excess risks, and start looking too short term. After all, we are only human!

The importance of this book can only be appreciated if you go back and think about your biggest investing successes. How much was luck versus skill? A good way to test is to see if the same approach has continued to work for you whenever you use it. Another good test is to see how often it would have backfired in the past.

In my research on good decision making, I find that those who guard the downside first make the most money in the long run. They are able to find ways to get the best of both worlds!

Remember that the two-edged sword can cut in either direction!

Some interesting discussion, but plenty of Taleb's large ego   June 1, 2003
 82 out of 98 found this review helpful

As a professional options trader and familiar with Taleb's "Dynamic Options Hedging", I expected a very professional book with interesting insights into the human and mathematical aspects of probability and randomness.

And while the book does provide some of that, the valuable information is embedded in writing that is overly self-centered if not egomaniacal.

I'd like to point out that I REALLY wanted to love this book. But I didn't.

Taleb writes about interesting ways in which people do not understand randomness but he does it in a way which is unnecessarily insulting and condescending.

Even worse, I find him hypocritical. He spends a lot of energy talking about the value of being able to change one's mind, as well as the value of large sample sizes in probability-based decision making. But then he describes how far out of his way he goes to avoid information (which might cause him to change his mind or which would increase his sample size.) Further he implies that anyone who takes in certain information, like almost any form of news broadcast, must be an idiot and lives in a world of self-delusion.

Taleb writes like a smart but anti-social and holier-than-thou trader. He writes some very useful stuff about randomness and its misapplication in modern thinking. But then he goes on psychological tangents which are nothing more than trying (and failing) to find a mathematical basis on which to defend his personality foibles (flaws?).

He over-generalizes about trading in a style which he does not employ, i.e. selling premium or making bets based on past occurrences. He writes as if his way is the only way that makes sense, and implies that in the long run it is only because of randomness that anyone who does not trade the same way he does could be successful. ("Ergoditic" is definitely the best word in the book....)

Taleb gets very close to interesting discussions of a non-mathematical nature as well, such as the level of emotion involved with success or failure, as well as some interesting historical information. But he lessens the effect of the good writing by then telling us how all this fits into how he lives his life, using as many obscure references as possible, in an ongoing attempt to justify (to the reader or to himself?) the lifestyle he has created for himself. For example, he uses the above discussion to explain why he does not like to look at his own trading profit or loss statements. And he writes it in a way that shows he expects us to think he's brilliant or heroic for having such discipline. Very silly stuff....

Taleb describes his hero worship (of a philosopher named Popper) and it becomes clear that at least a partial goal of this book is to get the reader to revere (or emulate) Taleb the way he reveres (and tries to emulate) Popper. Unfortunately, it doesn't work that way.

Overall I found the probability discussion interesting, but not worth the tedium of having to listen as if the reader is Taleb's (badly needed) therapist.

Luckily for Taleb, he says directly in the book that he will ignore all reviews. I think you should be able to find a less tedious source for the bits of valuable information "Fooled By Randomness" provides without having to suffer the insufferable smugness of the author.


Slashdot Review   December 14, 2003
 55 out of 58 found this review helpful

summary: Debunking fallacies of observation, Taleb reminds us of the pervasive ineffables that complicate life at every turn.

Marc Tardiveau writes:
I just finished Nassim Nicholas Taleb's Fooled by Randomness. It is an enjoyable book, written engagingly by an interesting character -- the kind of book that makes you think twice about certain things (for instance, the fact that you're not dead: is that really because you're so darn good, or does dumb luck play a part?) Although written all the way back in 2001, this book is more relevant than ever, since one of its major topics is the impact of unpredictable events on markets, insurance, and our perception of life in general. In fact, Taleb makes a living from unforeseen events; these days, that seems like a rather cunning niche.

The main topic of the book is the fact that all humans are simply terrible at judging probabilities. Taleb is a securities trader, so a lot of the book revolves around financial probabilities, but his argument is mainstream and requires absolutely no knowledge of the markets. The book details examples of people wildly misjudging risks and probabilities in many contexts. Often that misestimation is understandable in advance of certain events, but harder to excuse after they've occurred; Taleb hits pretty hard on what he calls "data snoopers," his term for people who back-fit theories to existing data.

One of the most notorious examples is the Bible code (which has been thoroughly debunked), but Taleb argues that analysts who spend their time trying to find patterns in historical market data are no different: if you try long enough and hard enough, you will unavoidably find apparent regularities, which can be extremely compelling when seen in isolation. In context, though, they dissolve into nothing but meaningless statistical anomalies. Taleb rightfully compares these searches for meaning to the famous monkeys and typewriters parable.

Taleb's best example of poor probability intuition is probably the infamous survivor bias, which is our tendency to be disproportionately impressed by success. We almost always ignore the fact that, for one success story, there are many failures. But we seldom hear about the failures (just like we never hear about the many theories that didn't fit the data). So it's all a game of numbers: out of 10,000 traders, a few are statistically bound to be successful, even if they are nothing more than lucky idiots. The fact that they succeeded does not mean anything. It doesn't mean that they are bad traders, but it doesn't mean that they are good traders either, because on average somebody had to succeed.

One of Taleb's hot buttons is that people tend to be too confident in what they know. He argues convincingly that we should take everything, including science, with a grain of salt. Writing about Karl Popper, he points out that there are only two kinds of scientific theories: those that are demonstrably false, and those that are not yet demonstrably false. An irksome (but sadly true) observation, yet most people behave as if what they know is eternal truth. One could of course argue that Popper's observation is but another kind of truth, but I tend to put a lot more trust in people who question what they know than in people who don't.

Another of Taleb's peeves is the human tendency to over-attribute every random event (the old post hoc, ergo propter hoc). For instance, a commentator saying that "the Dow went down ten points today on concerns about Iraq" is talking nonsense: there is no way anyone can tie such a small market move to any particular reason. I found this specific point (which in retrospect is blindingly obvious) especially enlightening, as I am embarrassed to admit that, until now, I just accepted those market comments at face value.

Taleb also has some fun at the expense of economists and analysts, especially those whose predictions turned out wrong, but who claim that the theories were in fact right, and that the facts simply weren't supposed to be that way. This is what he calls denial of history, and is common among investors and gamblers (the two being of course close cousins).

The style of the book is informal and funny, and often meandering. We hop from one topic to the next, which occasionally may detract from the book's continuity, but overall the author's points come through loud and clear. Ironically for a man who advocates self-doubt, Taleb is starkly self-confident, though not in an irritating way.

Taleb is an intriguing, multi-cultural, iconoclastic character that has been around Wall Street for a while, and now runs his own small firm. Malcolm Gladwell (author of The Tipping Point, an absolute must-read for anyone who owns a brain) has written an excellent article that shows how Taleb's reasoning runs counter to just about every bit of conventional Wall Street wisdom. If you're interested in the markets, especially derivatives, and how Taleb trounces most of Wall Street's voodoo doctors, this moderately technical interview from 1996 is worth reading too.

Overall, a warmly recommended book.