Fooled by Randomness

Infobox Book
name = Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
author = Nassim Nicholas Taleb


genre = Statistics, Philosophy, Finance
language = English
publisher = Random House
release_date = 2001
pages = 316
isbn = ISBN 0-8129-7521-9
preceded_by =
followed_by = The Black Swan

"Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets" is a book written by Nassim Nicholas Taleb, a philosopher of randomness about the fallibility of human knowledge.

Reaction

The book was selected by "Fortune" as one of "The Smartest Books of All Time".

The book's name, "Fooled by Randomness", has also become an idiom in English used to describe when someone sees a pattern where there is just random noise.

Thesis

Taleb sets forth the idea that modern humans are often unaware of the very existence of randomness. They tend to explain random outcomes as non-random.

Human beings:
# overestimate causality, e.g., we see Mosques in the clouds instead of understanding that there are just random clouds that appear to our eyes as Mosques (or something else);
# tend to view the world as more explainable than it really is, i.e., we look for explanations even when there are none.

Other randomness misperceptions discussed:
* Survivorship bias. We see the winners and "learn" from them, while forgetting the huge unseen cemetery of losers.
* Skewed distributions. Many real life phenomena are not 50:50 bets like tossing a coin, but have various unusual and counter-intuitive distributions. Example: a 99:1 bet where you almost always win, but "when you lose" you lose all your savings. You can easily be fooled by "I won this bet 50 times". Per Taleb: "Option sellers, it is said, eat like chickens and go to the bathroom like elephants" (option sellers earn a steady small income from selling the options, but when a disaster happens they lose a fortune).

Editions

In 2001, TEXERE LLC published the first edition of the book.
In 2004, TEXERE published a revamped second edition.
In 2005, Random House published a softback edition with more changes.
In 2005, a French version appeared, with many unique changes.
The book has been translated into 20 languages [ [fooledbyrandomness.com] ] , and is reported to have sold over half a million copies.
There seems to be a Random House edition slated to be published in October 2008. ( http://www.chapters.indigo.ca/books/Fooled-Randomness-Hidden-Role-Chance-Nassim-Nicholas-Taleb/9781400067930-item.html?ref=Search+Books%3a+%2527taleb%2527 )

See also

* List of cognitive biases
* The Black Swan (book)
* Black swan theory
* Ludic Fallacy
* Pareidolia - the psychological phenomenon of perceiving pattern in randomness
* Platonicity
* We (novel)

References

External links

* [http://www.fooledbyrandomness.com/ Nassim Taleb's home page] — scroll down there to see a description of the book as well as many media reviews
* [http://www.frankvoisin.com/?p=52 FrankVoisin.com] - Summary and Review
* [http://cag.csail.mit.edu/~salcianu/quotations/fooled-by-randomness.html Selected quotations]