Fooled by Randomness

The Hidden Role of Chance in Life and in the Market

By: Nassim Nicholas Taleb

Presented By:
Nikunj Patel (10029)
Piyush Kakkar (10030)

E-mail: nikunj02patel@gmail.com
 Nassim Nicholas Taleb

An MBA from Wharton and a PhD from the University of Paris.
He is currently a Distinguished Professor of Risk Engineering at
New York University's Polytechnic Institute and Visiting Professor
of Marketing (Cognitive Science) at London Business School.
 Outline of the book
Book is divided in three parts:
• Part 1: Solon’s Warning

• Part 2: Monkey’s on Typewriters

• Part 3: Wax in My Ears

 Part 1: Solon’s Warning
• Introduces the concept of randomness and
rare events (the black swan)

• Explains the understanding of human beings

towards randomness

• Explains the impact of these rare events

 Part 2: Monkey’s on Typewriters
• Explains the human biasness towards the
randomness

• Explains the luck factor and probability

blindness of human beings
 Part 3: Wax in My Ears
• How human beings deal with the
uncertainties/randomness
Theory of Determinism
Vs.
Theory of Randomness
Mediocristan
Vs.
Extremistan
 Luck or Skill???
Ten Thousand Monkeys on
Typewriter
Past is Imperfect Guide of
Future
 Black Swan Event
Something did not happen till now
that does not mean that it will not
happen in the future
 Silent Evidence

We always try to
learn from the
winners
 Process is Important…
Good Bad
Process Process
Good
Outcome Skilled Lucky

Bad Fool who

Unfortunate deserves that
Outcome
 Frame of Reference

We always try to
relate our
success with
others
 Useless Bell...

Life is not always 50:50

 Taleb’s Distribution
High probability of a small gain, and a
small probability of a very large loss
 Learned statistics ???
Please…
Unlearn it
Most Dangerous Knowledge Given by Professors and Teachers
Incorrect application of
statistics
Dr. John(statistician) & Tony(Layman)
What we don’t know is more important than
what we know…

Our decisions depends on only

what we know.
Noise ??? Information
 Timescale and Noise
Probability of
Timescale Noise
success
1 sec 50.02% 49.98 %

1 min 50.17% 49.83 %

1 hour 51.3% 48.7 %

1 day 54% 46 %

1 month 67% 33 %

1 quarter 77% 23 %

1 year 93% 7%
Madhucon Projects Ltd.
Take Your Decision

25 % How
Much???

10 %
 Unpredictable
Frame of Market
Reference Event

Comparison Analyze

Gain / Significant
Loss ???
Outcome Yes

Decision
 Black Swan
Event

Don’t Know

Past Vs.
future
Decision
Noise/
Information
Silent
Evidence
Taleb
Distribution
 Our Conflicts
• Statistics Vs. No Statistics
• Theory Vs. Reality
• How to identify Noise (Randomness)
 Further Reading…
• After “Fooled by Randomness” in 2001 N.N.
taleb has published…
• “Black Swan” in 2007 and
• “The Bed of Procrustes- Philosophical and
Practical Aphorisms”in Dec-2010.
Any Noise???