Expect the Unexpected
I was moved to do some research on Nassim Nicholas Taleb by some reader comments on my expectancy post. I began by looking at the reviews of his book, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, over at Amazon. Here’s just one of the reviews:
If the prescriptions for getting rich that are outlined in books such as The Millionaire Next Door and Rich Dad Poor Dad are successful enough to make the books bestsellers, then one must ask, Why aren’t there more millionaires? In Fooled by Randomness, Nassim Nicholas Taleb, a professional trader and mathematics professor, examines what randomness means in business and in life and why human beings are so prone to mistake dumb luck for consummate skill. This eccentric and highly personal exploration of the nature of randomness meanders from the court of Croesus and trading rooms in New York and London to Russian roulette, Monte Carlo engines, and the philosophy of Karl Popper. Part of what makes this book so good is Taleb’s ability to make seemingly arcane mathematical concepts (at least to this reviewer) entirely relevant in evaluating and understanding everything from the stock market to the success of those millionaires cited in the aforementioned bestsellers. Here’s an articulate, wise, and humorous meditation on the nature of success and failure that anyone who wants a little more of the former would do well to consider. Highly recommended. –Harry C. Edwards
After reading several more reviews and ordering the book I decided to find some other info on him on the web. I came across three really interesting articles about Taleb:
- Learning to Expect the Unexpected over at the intriguing Edge site.
- Blowing Up: How Nassim Taleb Turned the Inevitability of Disaster into an Investment Strategy by Malcolm Gladwell, the author of The Tipping Point.
- No Such Thing (PDF), a Bloomberg article about risk management with the subtitle: “You’re more likely to run across a black swan than to find a sure bet in the financial markets.”
I’ve only read the first article so far, hopefully I’ll get to the others tomorrow. I was going to post some choice excerpts from the one article I’ve read but there’s so much choice stuff in there I would have ended up just copying the entire article. Along with tons of other articles listed on Taleb’s web site there’s an NPR interview that I plan on listening to real soon.
As Duru said in the comments of that other post this material applies to much more than just trading. I think all of us would be better served questioning widely accepted paradigms more.
This post has 7 comments
June 4th, 2004
Mike,
Thanks for these posts, these articles on Talebs and his theories/thoughts are great. Can it be that we are all just lucky?
June 4th, 2004
Actually, I’m reading this book right now and think that it’s pretty good. He definitely makes sense
June 4th, 2004
It’s not that *everything* we do is defined by luck or lack of luck. It’s just that it is so hard for us to distinguish the difference between luck and true skill. We only know we’ve got skills when we can reliably and consistently perform under a wide range of possible scenarios. Obviously, a very tough bar to climb! The best we can do is to follow the kinds of stuff Mike demonstrates on this site…use indicators that suggest when the probabilities appear most promising and use stops that protect us from our likely inability to know just what type of “random number generator” we are really up against!
June 6th, 2004
Duru, I once had a boss that said, “its not about being good, its about being lucky” and I tell you I’ve seen lots of skillful professionals (doctors, lawyers, engineers, etc) who just arent lucky and get slammed. I agree, skill is very important to understand and interpret indicators, momentum, volume, etc but sometimes you gotta be there at the right time and that could just be luck.
June 7th, 2004
I have often heard that saying as well. A hard reality in life to accept, especially if you consider yourself particularly skilled at something. I was mainly saying that it is often hard for us to distinguish skill from luck. But one of Taleb’s lessons is that if you want to give benefit of the doubt, it goes to luck. That is, it is luck until proven otherwise. It may sound funny, but I am guessing there is some skill in positioning yourself to benefit from luck. Like people who are able to see opportunities early and seize them. Or people who are simply willing to act when others are indecisive and paralyzed. Etc…!
June 7th, 2004
I work in the news biz, but it’s purely a crapshoot that I ended up in this line of work. My first journalism professor had just gotten back to the classroom after a year off working in the biz and was really excited about teaching his new charges. IF it hadn’t been for his encouragement I’d have given up for sure.
My current job as an editor is primarily to find mistakes and fix them before they get published. It’s uncanny the number of times I’ve found errors by pure happenstance — not because I said “something smells here” and my suspicions were confirmed by deft investigatory skills; often I’ll find terrible errors in one area looking for something else.
It’s true that you make some of your luck, but it’s probably truer that it’s *what you make of your luck* that determines success of failure.
June 7th, 2004
Then we are in agreement…