Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb
My rating: 2 of 5 stars
As impressive as this book sets out to be, about 1/3 of the way through Taleb sets a very impressive bar for himself. By citing Hume’s critique on induction, Taleb aligns his thoughts on probability with Hume’s critique of induction. He then nearly immediately backs off from Hume’s scathing remarks on causality to say, well, no, we don’t want to go that far, there is causality.
The rest of the book is disappointing. Despite his address on the subject in a variety of ways, Taleb never returns to tell us what rationality is or how he realizes there is causation (to separate the signal from the noise, as he likes to say).
The rest of the book is a celebration of his own rationality. Very slyly, he then insists on his own rationality with the following structure (all the while admitting that he is not totally rational but aspires to be as such, at least in his career).
He demonstrates that scientists, other stock traders, humanities academics and so on often persist on their lines of consistency because they are beholden to such positions based on their career, despite their attempts at rational argument. He then states that because he changes his mind often in his work, he is not like them. Thus, as they are irrational and he is not like them, ERGO he must be rational.
Sorry buddy, proofs by negation do not work in real life.
There are a few failings that occur out of this.
1. Despite propounding on what is not rational (an inconsistency of basis given what is actually driving their work) Taleb fails to explain what is rational.
2. Taleb insists that he understands that there is causation despite Hume’s critique of induction — but nonetheless never addresses that point. His proof by negation is repeated maybe two or three times, and then he leaves off at that. He utilizes philosophy’s context to heighten his remarks on others but neglects to engage at that level with that context when he decides to disagree with them.
3. Changing one’s mind mysteriously without explanation may be a perfectly good behavior for a stock trader, but it is not a sign of rationality. Instead, given that academics, scientists and politicians cannot change their mind because of their career, we should understand that stock traders judged on their performance MUST change their mind because marks change it for them. If stock traders are rational because they must match their career context to survive, does this also not signify the rationality of academics, politicians and scientists because their career context requires them to behave in a consistent manner? If we judge people’s behavior based off of their career isn’t the proof by negation faulty because Taleb switches basis to assess different groups? If he wishes to judge the veracity of one group on one criteria should he not also judge other groups on a similar criteria when comparing what is rational?
4. Taleb seems to take it for granted that economic thinking is what rationality is. His he wishes his discourse to be intellectually, sound he should address Hume in terms of economics, instead of just referencing him and a bunch of other thinkers as signals of his intellectual prowess.
5. Early on, Taleb states that in the long run, all strategies even out, that given profit and loss, there is a zero sum situation. Throughout the entire book, however, he states that traders who get exceedingly rich are often so because their strategies match a trend for a time. When those trends change, they will lose out. He cites his own staying power as a sign of his own rationality. Does this mean that in the end no one is rational, that he is only right “for now”? I would think that this reading does not match the desired conclusion he wishes to leave us with about rationality.
And finally, in this sense, it seems that Taleb has no conception of rationality other than whatever allows us to have staying power. If this is true then he has to take back his statements on rationality in the face of academics, scientists and so on. He should also consider that “lucky” trends like memes which are proof of human irrationality are in fact rational in their persistence.
Taleb provides little means for us to address the ideas he puts forward critically. In fact, while he is critical of others, he provides little basis for his own rational backing. This started as a promising book but ended up being very disappointing because in the end we have the IDEAS Taleb admires although in terms of actual examples, he ends up very nearly being the only example of what is rational.
