The Key To Fooled By Randomness | Nassim Taleb

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Russian Roulette & Millions Of Dollars

It is only because we fail to understand probability that we continue to believe events are non random. In Fooled By Randomness, Nassim’s 1st instalment of the Incerto, Taleb explores just how ‘Fooled By Randomness’ we all are in our daily lives and just how hinged on chance our systems exist.

How about personally? Our success, our failures… yes, we still have agency and relative control over our lives but something Taleb makes obvious is how randomness affects the severity of our ups and our downs.

It is true that random events are outside of our control, but through understanding further the characteristics of randomness we can inform ourselves and the decisions we make with more confidence and stability.

Additionally, understanding probability and randomness can also help us to better understand the limitations of our own knowledge and predictions. By recognizing the role of chance in shaping outcomes, we can avoid overconfidence in our own abilities and predictions, and instead approach decision-making with a more humble and cautious mindset. This can help us to be more resilient in the face of uncertainty and to better navigate the complex and unpredictable world around us.

Fooled By Survivorship Bias

We hear a lot about those who won but are deaf to the layered graveyard of losers who fell along the way.

Steve Jobs is the enduringly (un)lucky recipient of much praise and worship for his work as Apple’s one and only ‘visionary’. There are numerous books, biopics, and case studies which attribute his success to having a ‘singular vision’ and exceptional marketing ability. But was Steve Jobs’s management traits and marketing ability legacy really what credited Apple’s success?

The modern day Silicon Valley re-modelling of Steve Jobs management styles and minimalist design are consequences of Survivorship Bias.

“Mild success can be explainable by skills and hard work, but wild success is usually attributable to variance and luck”

Survivorship Bias correlates Steve Jobs’s output with a postmortem analysis of how he worked. This after death double take attributes Apple’s success to Steve, rather than Steve’s success to Apple. Apple is the collection of hundreds of brilliant minds whereas Steve was simply a fruitarian face.

“Luck is where preparation meets opportunity”, Oprah.

Survivorship Bias tells us why we know little of all the other tech CEO’s and visionaries that came before him. Silicon Valley managers are fooled into thinking that the Steve Jobs management style is the winning strategy. When in reality they are attributing his success to the variables that ironically in practice make a person more disagreeable and less effective as a manager.

It is Survivorship Bias that drives the Steve Jobs narrative. There is no consideration for the graveyard of variabilities we cannot hear. Steve Jobs endures because of a combination of legitimate exceptionalism (after all, he created the iPod) and a healthy dose of Survivorship Bias.

Russian Roulette Millionaires

Imagine Jon Jonson, an exceptional young man who made $5,000,000 by the time he was 23 years old.

Impressive, right?

What we tend to know and think isn’t necessarily correct. What we know and think is a consequence of Survivorship Bias. Someone won, and therefore we attribute his success to the traits he embodies, irrespective of how correct they truly are.

Jon Jonson made his thick fortune at such a young age by playing Russian Roulette for $1,000,000 a day.

He survived 5 days of Russian Roulette by pure chance, but he thinks he is gaming the system, because while everyone is shooting with their right hand… Jon Jonson has a special trick, he is shooting with his left.

He starts telling people; “Hey! I have the secret to becoming a young millionaire, I have mastered Russian Roulette, so follow my lead and you will become a young millionaire too!”

So now everyone’s playing Russian Roulette with their left hand… and some win. Now, all of a sudden you have people everywhere coming forward pronouncing how amazing and successful the left handed pull is.

According to Survivorship Bias you now have a 100% successful strategy because this is working for seemingly everyone. However what happened to those poor people for whom the left handed rule didn’t work? They are piling up the silent graveyard of left handed, trigger happy fools.

So although reports will indicate the rule having a 100% success rate, Survivorship Bias is a consequence of randomness, not a superior strategy.

Beginners Luck

People offence pronounce they had beginner’s luck when gambling.

My brother boasts that he won over $1,000 the first time he went to the casino. This is the purest form of real world Survivorship Bias.

Those who won big the first time they gambled are going to sing about it much louder about it than those who lost. Those who won big will go on to experience a loss (eventually) and then be able to confirm in their own heads that it was luck that got them through the first time.

The phrase, ‘Beginners Luck’ exists because of Survivorship Bias.

Chance Favours Hard Work And Skills

You only have control over your behaviour.

Don’t be ‘Fooled By Randomness’ and fall into the assumption that systems are correct and forecasting is accurate. Systems are constructed according to the Survivorship Bias of winning ideas and winning people. And as we have learnt, much like Jon Jonson and Russian Roulette, not always the most correct and true methods become winners.

Inferring predictions about the future from past events may not be such a good idea.

For Taleb, ‘Fooled By Randomness’ stokes the development of his complimentary ideas of the Black Swan and Antifragility.

The book is a fundamental inquisition into the role randomness plays in our lives. So much of what is successful is timing. The best strategy for a given time might not be the best strategy overall.

Typically there is a misguided explanation for why success occurred previously. Question the randomness at play and don’t become a fool.

We Are Not Nihilists!

It is easy to judge this message as nihilistic.

“So if everything is random then what control do I have over my life? I may as well stop trying”

I hear you. And so does Taleb, he writes…

“I take risks crossing the road every day, so according to you I should stay home in a state of paralysis. The answer is that we don’t cross the street blindfolded, we use sensory information to mitigate risks and reduce exposure to extreme shocks”

The point of ‘Fooled By Randomness’ and furthermore The Incerto at large is the following.

We live in an extraordinarily random, high risk world. We all cross the street every day. What Taleb suggests is that rather than crossing the street every day with a blindfold on, hoping to not get taken out by a car at random. That by studying risk and probability, we can remove our blindfold to much of the world’s randomness and give ourselves a better chance of making it to the other side.

‘Fooled By Randomness’ is anti-nihilistic. ‘Fooled By Randomness’ is a step in the right direction to removing the blindfold.

Incerto: Antifragile, The Black Swan, Fooled By Randomness, The Bed Of Procrustes, Skin In The Game.

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