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Fooled By Randomness

Introduction

Without realizing it, people often attribute luck to skill, randomness to determinism, and coincidence to causality. We confuse noise with signals, forecasts with prophecies, and supposition with certainty. We consider the lucky idiot a skilled investor without understanding the games of chance that created her success. Consequently, we leave ourselves vulnerable to risks and randomness that we should have anticipated, but didn’t.

In his book Fooled by Randomness, bestselling author and former options trader Nassim Nicholas Taleb examines the outsized role that luck plays in success, how and why people don’t generally understand luck, and how we can accommodate randomness in our lives once we’re aware of it. The book is the first in a five-book series entitled Incerto that examines many different aspects of randomness.

While Taleb primarily focuses here on examples from the world of investing, his principles are applicable to any field ruled by unpredictability (such as economics and politics) and demonstrate how we’re fooled by randomness in many aspects of our lives.

(Shortform note: To further explore Taleb’s thoughts on randomness, read our summary of his second book in the series, The Black Swan.)

We’ll divide our summary of this book into four parts:

In Part 1, we’ll examine how luck and rare events affect success and failure.
In Part 2, we’ll discuss ways in which we think about randomness, risk, and probability wrongly.
In Part 3, we’ll examine why we tend to think wrongly about those things.
In Part 4, we’ll talk about how to approach your life and work with a healthy respect for randomness.

(Shortform note: We have significantly reorganized the book from its original structure to add clarity.)

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