Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

Author: Nassim Nicholas Taleb

As with the first Taleb book I read, Skin in the Game, I had to work extra hard while reading this to divorce the author’s wisdom from his style.

That wisdom is, in one man’s opinion, worth the effort. If nothing else, he’s keeping it real and letting his personality shine. Taleb discusses risk like nobody else I’ve read. He harps on the same points over and over, and for good reason: it’s the simple points that we mortals keep screwing up in our assessments.

One of the big points that hopefully sticks with me is his discussion of survivorship bias. Here’s a great example: trading stocks/options/etc is a great way to make money because it seems that everyone who has that job makes a ton of money! This is true. But what about the people who once had that job but no longer have that job? Most likely their career change was due to a sudden loss of a ton of money – more than they ever thought they could lose, and maybe more than they had ever made. And most likely that happened all of a sudden, so they “blew up”. What percentage of traders actually have sustained good outcome? I don’t know, but Taleb makes it clear that it’s a much smaller group than we imagine at first glance – all thanks to survivorship bias. We measure only what we see, and fail to measure what we can no longer see. So when we extrapolate based on what we see, we end up with a flawed understanding of reality. Basic, and also profound.

I highly recommend this book to everyone who takes risks for a living (which is probably you).

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Factfulness: Ten Reasons We’re Wrong About the World – and Why Things Are Better Than You Think

Authors: Hans Rosling, Anna Rosling Rönnlund, Ola Rosling

A couple years ago I watched some of Hans Rosling’s TED talks and found them captivating. He was a Professor of Public Health, and had an amazing way of bringing statistics about the world to life. He focused on busting commonly-held but outdated myths about the world. He passed away near the completion of this book, and luckily his collaborators (his son & daughter-in-law) were able to press on to its publication.

Factufulness means having a fact-based world view. Because humans take so many mental shortcuts (see: cognitive bias), we often fall into patterns of thinking that are just plain wrong. The authors break down our errors into 10 human instincts, some of which are pseudonyms for commonly-documented heuristics (The Straight Line Instinct, The Generalization Instinct), and others are cousins (i.e. The Blame Instinct, The Urgency Instinct).

The surface message of the book is that globally the world has been improving at a rapid pace. The deeper message is that we should acknowledge evidence of how our world is evolving and  update our world view (i.e. practice Factfulness)!

The best way to decide if you should read this book is the 3-minute quiz below:

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