Fooled by Randomness

Has anyone read "Fooled by Randomness" by Nassim Taleb? I highly recommend it. Interesting insights on the nature of randomness and the philosophy of forecasting. Just wondering what other people thought about it.

[bongo]

Loved it. Stroked my envious dislike of investment bankers and others making more money than me. Also technically and philosophically interesting.

I suppose I liked it mostly because of its philosophical nature. I've always been interested in epistomology. How can we really know what is true? I suppose that is also one of the reasons I am interested in actuarial science. Given some data, what can we do to extract some truth from it about the population of interest? How can we judge whether or not our assumption that the future will be like the past is valid? Can we reach truth through empirical observation at all? How much should we trust our models?
I enjoyed Fooled by Randomness, but I can't say that I agreed with all of it. Taleb seems to have a strong disdain for Chaos Theory and the theory of market efficiency, both of which intrigue me.

[Martin Frankel]

I enjoyed this book too. I found the author's arrogance very entertaining. Anyone who can mock Hegel, Derrida, and George Will with flair and intelligence is OK by me. He is a cultivated man with interesting opinions on many topics--a rarity among finance professionals.

Regarding the content: don't buy this book expecting to find methodical, technical arguments supporting the author's ideas. It's clearly written for a broad audience, in an essentially anecdotal style. The author does, however, cite others who have contributed to the same discourse in a more scientific manner.

In any case, his ideas about markets and about randomness are well thought-out and have a common-sense appeal. I was intrigued by his description of his own trading strategy. His payout distribution is skewed right rather than left, because he believes that "rare events" are undervalued. This is probably correct; there is something about the human psyche which makes us underestimate the frequency and severity of catastrophic events. This is certainly true in my own field (PC reinsurance) which has witnessed two black swans in the last ten years.

[chucky almendinger]

Is this the guy who was profiled in the Money issue of the New Yorker?

[Martin Frankel]

Yes.

[Paddyboy1]

This book was kind of entertaining but then I got bored of it. He seems to spend half the book talking about how we shouldn't use the evidence of success as some proof of skill, especially in the financial markets. And then he profiles half-a-dozen people as evidence that him and his friends are smarter because they are better hedged against poverty.

Also, his dead friend seemed to be wonderful because he was so risk-averse, but then when we finally get down to the meat of how he makes his money, he insists that he makes his name by buying out of the money options, waiting for the big score. But isn't that what the tech guys did?

I found myself nodding agreement at the book when he spoke about the cognitive dissonance he observed in himself regarding his own (and the gambler's) control over the financial universe. I can say out loud I'm not sophisticated enough to beat the market, but I can't really convince myself of it.