Fooled by randomness : the hidden role of chance in life and in the markets
This work has shaken Wall Street thanks to its contention that much of what people perceive as skill playing the markets is often nothing more than luck
Print Book, English, 2005
2nd ed., updated View all formats and editions
Random House, New York, 2005
xlviii, 316 pages ; 24 cm
9781400067930, 9780812975215, 1400067936, 0812975219
60349198
pt. I: Solon's warning : skewness, asymmetry, induction. If you're so rich, why aren't you so smart? ; A bizarre accounting method ; A mathematical mediation on history ; Randomness, nonsense, and the scientific intellectual ; Survival of the least fit : can evolution be fooled by randomness? ; Skewness and asymmetry ; The problem of induction
pt. II. Monkeys on typewriters : survivorship and other biases. Too many millionaires next door ; It is easier to buy and sell than fry an egg ; Loser takes all : on the nonlinearities of life ; Randomness and our mind : we are probability blind
pt. III. Wax in my ears : living with randomitis. Gamblers' ticks and pigeons in a box
Carneades comes to Rome : on probability and skepticism
Bacchus abandons Antony
Epilogue: Solon told you so. Preface
Acknowledgments for the updated second edition
Chapter summaries
Prologue
pt. I. Solon's warning : skewness, asymmetry, induction
1. If you're so rich, why aren't you so smart?
Nero Tulip
Hit by lightning
Temporary sanity
Modus operandi
No work ethics
There are always secrets
John the high-yield trader
An overpaid hick
The red-hot summer
Serotonin and randomness
You dentist is rich, very rich
2. A bizarre accounting method
Alternative history
Russian roulette
Possible worlds
An even more vicious roulette
Smooth peer relations
Salvation via aeroflot
Solon visits Regine's nightclub
George Will is no Solon : on counterintuitive truths
Humiliated in debates
A different kind of earthquake
Proverbs galore
Risk managers
Epiphenomena
3. A mathematical mediation on history
Europlayboy mathematics
The tools
Monte Carlo mathematics
Fun in my attic
Making history
Zorglubs crowding the attic
Denigration of history
The stove is hot
Skills in predicting past history
My Solon
Distilled thinking on your PalmPilot
Breaking news
Shiller redux
Gerontocracy
Philostratus in Monte Carlo : on the difference between noise and information
4. Randomness, nonsense, and the scientific intellectual
Randomness and the verb
Reverse turing test
The father of all pseudothinkers
Monte Carlo poetry
5. Survival of the least fit, can evolution be fooled by randomness?
Carlos the emerging-markets wizard
The good years
Averaging down
Lines in the sand
John the high-yield trader
The quant who knew computers and equations
The traits they shared
A review of market fools of randomness constants
Naive evolutionary theories
Can evolution be fooled by randomness?
6. Skewness and asymmetry
The median is not the message
Bull and bear zoology
An arrogant twenty-nine-year-old son
Rare events
Symmetry and science
Almost everybody is above average
The rare-event fallacy
The mother of all deceptions
Why don't statisticians detect rare events?
A mischievous child replaces the black balls
7. The problem of induction
From Bacon to Hume
Cygnus Stratus
Nordhoff's
Sir Karl's promoting agent
Location, location
Popper's answer
Open society
Nobody is perfect
Induction and memory
Pascal's wager
Thank you, Solon. pt. II. Monkeys on typewriters : survivorship and other biases
It depends on the number of monkeys
Vicious real life
This section
8. Too many millionaires next door
How to stop the sting of failure
Somewhat happy
Too much work
You're a failure
Double survivorship biases
More experts
Visibility winners
It's a bull market
A guru's opinion
9. It is easier to buy and sell than fry an egg
Fooled by numbers
Placebo investors
Nobody has to be competent
Regression to the mean
Ergodicity
Life is coincidental
The mysterious letter
An interrupted tennis game
Reverse survivors
The birthday paradox
It's a small world!
Data mining, statistics, and charlatanism
The best book I have ever read!
The backtester
A more unsettling extension
The earnings season : fooled by the results
Comparative luck
Cancer cures
Professor Pearson goes to Monte Carlo (literally) : randomness does not look random!
The dog that did not bark : on biases in scientific knowledge
I have no conclusion
10. Loser takes all, on the nonlinearities of life
The sandpile effect
Enter randomness
Learning to type
Mathematics inside and outside the real world
The science of networks
Our brain
Buridan's donkey or the good side of randomness
When it rains, it pours
11. Randomness and our mind : we are probability blind
Paris or the Bahamas?
Some architectural considerations
Beware the philosopher bureaucrat
Satisficing
Flawed, not just imperfect
Kahneman and Tversky
Where is Napoleon when we need him?
"I'm as good as my last trade" and other heuristics
Degree in a fortune cookie
Two systems of reasoning
Why we don't marry the first date
Our natural habitat
Fast and frugal
Neurobiologists too
Kafka in a courtroom
An absurd world
Examples of biases in understanding probability
We are option blind
Probabilities and the media (more journalists)
CNBC at lunchtime
You should be dead by now
The Bloomberg explanations
Filtering methods
We do not understand confidence levels
An admission. pt. III. Wax in my ears : living with randomitis
I am not so intelligent
Wittgenstein's ruler
The Odyssean mute command
12. Gamblers' ticks and pigeons in a box
Taxi-cab English and causality
The Skinner pigeon experiment
Philostratus redux
13. Carneades comes to Rome : on probability and skepticism
Carneades comes to Rome
Probability, the child of skepticism
Monsieur de Norpois' opinions
Path dependence of beliefs
Computing instead of thinking
From funeral to funeral
14. Bacchus abandons Antony
Notes on Jackie O.'s funeral
Randomness and personal elegance
Epilogue. Solon told you so
Beware the London traffic jams
Postscript. Three afterthoughts in the shower
First thought : the inverse skills problem
Second though : on some additional benefits of randomness
Uncertainty and happiness
The scrambling of messages
Third thought : standing on one leg
Acknowledgments for the first edition
A trip to the library : notes and reading recommendations
Notes
References
Index
Originally published: New York : Thomson/Texere, 2004