145 lines
4.9 KiB
Markdown
145 lines
4.9 KiB
Markdown
---
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id:
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aliases: []
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title: _Fooled by Randomness_
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tags:
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- authorship/original
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- destiny/permanent
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- status/complete
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- topic/risk
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- type/media-commentary
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dg-publish: true
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---
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# _Fooled by Randomness_
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This is the commentary companion to [[taleb_2001_fooled-by-randomness]].
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## Review
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This is a low-effort bestseller bait
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on the order of the lucky fools it (rightly) criticizes.
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The only difference is that Warren Buffet is a successful trader.
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If you've read or are reading this book
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and find yourself agreeing with any of its conclusions,
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try _The Failure of Risk Management_ by Douglas W. Hubbard.
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Hubbard dismantles Taleb's pessimism point by point,
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and it's an excellent read besides.
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One might be tempted to say
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that the damage Taleb and this book have done
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to risk management and adjacent fields is immeasurable,
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but I'm confident a rigorous model could estimate the damage
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to an acceptable level of certainty.
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## Critiques
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### Intellectual Insecurity
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So far I've gotten the distinct impression
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that statistics hurt Taleb's head,
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and he is intimidated by academics.
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#### "Logic Without Statistics"
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FbR uses few citations,
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relying on the strength of Taleb's logic alone, by his own stating.
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Taleb argues this strategy is perfectly legitimate, which is _true_,
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but it does not follow that it makes for the most robust argument.
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In recent editions of the text, Taleb claims that his editors have _implored_ him
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to provide figures, graphs, studies, etc. as---_he agrees_---would be expected
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for any similar book on statistical phenomena, but he refuses.
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I don't find this approach charming at all,
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especially considering how critical Taleb is of demagogues like Warren Buffet,
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who could write that their success was foretold burning oracle bones
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and the book would still be a bestseller.
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_Fooled by Randomness_ fails to differentiate itself from such books,
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except in that it was written by a mediocre trader.
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Juxtaposing FbR with [[hubbard_2020_failure]],
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which is a more traditional work of statistical thought---
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well researched, and with a thorough bibliography---
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Taleb's arguments are considerably less satisfying.
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When Hubbard is wrong, it's clear his interpretation is flawed in that instance,
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when _Taleb_ is wrong, I question the foundation of all his arguments.
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Less politely, I wonder why I'm listening to him just make up justifications
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for what he already believed.
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So far I'm lead to believe what Taleb means by "logic"
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is only anecdotes and aphorisms.
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He wants to be Plato, but he comes off as "this came to me in a dream".
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> [!quote] Chapter 2? (pp.)
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> Scientists can not meaningfully describe the probability of black swans
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> because it would require observing the future.
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> [!quote] Chapter 2? (pp.)
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> Accountants don't care about probability,
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> if they did they wouldn't be accountants,
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> and if they were they would make an error on your tax returns.
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#### Qualitative Probability
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Taleb loses me in the introduction
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when he states that he defines _probability_ qualitatively.
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[[hubbard_2020_failure]] gives a comprehensive history
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of the terms **uncertainty**, **probability**, and **risk**,
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Later it's clear he what he means by probability is **uncertainty**.
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> [!quote] Chapter 2? (pp.)
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> Certainty is something likely to occur in the largest number of possible worlds,
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> uncertainty concerns what is unlikely to occur in many possible worlds.
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#### The Black Swan
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**The black swan**, or the unforeseen event,
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is the idea that no quantitative risk management is possible
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because of the possibility of a single loss
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that would negate all previous gains.
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Hubbard points out that Taleb's position is paradoxical.
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> [!quote] [[hubbard_2020_failure#A Note About Black Swans]]
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> ...he is assessing the validity of using historical examples
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> by using _historical examples_.
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Besides its credibility, the suggestion reeks of intellectual insecurity.
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It is very convenient to dismiss the whole of statistics based on logic alone,
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much more so to dismiss the tests used to prove the validity of statistical methods.
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### False Lucky Fools
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Taleb repeatedly conflates legitimate lucky fools
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and people with ideas he doesn't like.
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> [[hubbard_2020_failure]]
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> does a much better job of explaining "lucky fools"
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> (see [[the-failure-of-risk-management#Red Baron Effect]]).
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#### Nero Tulip vs. John
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Taleb uses the story of Nero Tulip,
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an incredibly cautious investor,
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and his success over his risk-loving rival "John"
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to promote the idea that modern quantitative methods
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(as John is presumed to represent)
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are inherently flawed.
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One of many problems with this presentation
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is that John is described as young, inexperienced,
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and of low intelligence.
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John is a typical lucky fool:
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there is no indication that he has any strategy,
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much less that he is practicing modern portfolio theory.
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If I mistake Taleb's intent,
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and the story was only meant to convey
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that experienced, conscientious, and cautious decision-making
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_can_ lead a person to success,
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then I'm not sure who he's arguing against.
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