Fooled by Randomness

Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
Author(s)	Nassim Nicholas Taleb
Language	English
Genre(s)	Statistics, Philosophy, Finance
Publisher	Random House
Publication date	2001
Pages	316
ISBN	0-8129-7521-9
OCLC Number	60349198
Dewey Decimal	123/.3 22
LC Classification	HG4521 .T285 2005
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 about the fallibility of human knowledge.

Reaction

The book was selected by Fortune as one of the 75 "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.^{[citation needed]}

Thesis

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

Human beings:

1. overestimate causality, e.g., they see elephants in the clouds instead of understanding that they are in fact randomly shaped clouds that appear to our eyes as elephants (or something else);
2. tend to view the world as more explainable than it really is. So they look for explanations even when there are none.

Other misperceptions of randomness that are discussed include:

• Survivorship bias. We see the winners and try to "learn" from them, while forgetting the huge number 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. An example of this is a 99:1 bet in which you almost always win, but when you lose, you lose all your savings. People can easily be fooled by statements like "I won this bet 50 times". According to Taleb: "Option sellers, it is said, eat like chickens and go to the bathroom like elephants", which is to say, option sellers may earn a steady small income from selling the options, but when a disaster happens they lose a fortune.

Editions

In 2001, TEXERE published the first edition of the book. (ISBN 1-58799-071-7, London : Texere, 2001)

In 2004, TEXERE published a revamped second edition.

In 2005, Random House published a softback edition with more changes. (ISBN ISBN 1-58799-190-X, New York : Random house, 2005)

In 2005, a French version appeared, with many unique changes.^{[citation needed]}

The book has been translated into 20 languages, and is reported to have sold over half a million copies.

Further editions have been published by Penguin (softback, May 2007) and Random House (hardback, October 2008.)

See also

• List of cognitive biases
• The Black Swan (Taleb book)
• Ludic fallacy
• Pareidolia – the psychological phenomenon of perceiving pattern in randomness

External links

• Nassim Taleb's home page – scroll down there to see a description of the book as well as many media reviews