By Chet Yarbrough
Narrated by Sean Pratt
Intuition suggests incredulity as first reaction to Nassim Taleb’s book, “Fooled by Randomness”; the second instinctive reaction is author arrogance. Incredulity comes from Taleb’s argument that everything that happens in life is random or, at best, probabilistic. Perception of arrogance comes from Taleb’s smug presentation–a believe me or don’t, because it works for me attitude. However, by the end of Taleb’s book, a reader begins to believe there is more insight than arrogance in his opinion.
Perception of arrogance comes from feeling like a child being lectured by an ancient oracle. Taleb writes like an omniscient god in command of life’s truth; with anyone who disagrees branded as an incompetent or fool. (That feeling is reinforced by a condescending comment about Master’s degree holders. Taleb identifies Master’s degree holders as the most common fools that laud or denigrate his oracular commentary; i.e. inferring that if one does not have a Ph.D, disagreement is unjustified.)
In the final chapters of “Fooled by Randomness”, Taleb seems less arrogant, less ancient, and more human; i.e. subject to the same exigencies of all life’s fools. In reality, Taleb is considerably better educated and genetically gifted than most human beings. Taleb is a multi-lingual, multi-cultural, scholar that holds B.S., M.S., M.B.A., and “Doctor of Philosphy’” degrees from well-respected universities–the University of Paris and Wharton.
Taleb argues that fellow philosophers, humanists, and economists (e.g. Karl Popper, Michel Montaigne, David Hume
Daniel Kahneman, Richard Dawkins, and John Maynard Keynes) bolster his case for human response, based on randomness in life. All of these renowned scholars (not all of which are Doctors of Philosophy) argue, from different disciplines and in different ways, that humans are emotion driven (frequently irrational) and inclined to intuit rather than calculate response to life.
Kahneman wrote “Thinking Fast and Slow” to explain how human beings make decisions. They intuit judgment first and reason second–simply because intuition is an easier and faster mental exercise.
However, Kahneman explains–intuition is not based on a calculated and considered truth but on individual life experience; experience freighted with bias and subjectively perceived facts. Kahneman suggests humans rarely think slowly with careful consideration of facts, but prefer thinking fast, based on past experience, habit, and cultural prejudice. Kahneman argues that humans most often act instinctively. Instinctive response can certainly be right but becomes more probabilistic than linearly logical. Taleb takes Kahneman’s research one step further. He suggests that Kahneman’s “thinking-slow” is equally fraught with error; not only from incompetence of thinkers, but from inherent unreliability of observation and measurement.
Taleb notes that the philosopher, Karl Popper, denigrated scientific method because of the nature of creating hypothesis, with inference of truth based on not finding falsehood. Popper’s point being that “not finding falsehood” is not proof of truth; consequently one must be skeptical when considering the truth of science or the scientific method. This reinforces Taleb’s belief in the probabilistic nature of life.
“The Selfish Gene”, written by Richard Dawkins, is cited by Taleb as evidence of randomness in life. As Dawkins notes in discussing Darwin’s “Origin of Species”, plants and animals evolve based on random changes in genetics; i.e. when a random change occurs, survivability becomes the gene’s paramount objective. Every gene is selfish. Every gene is striving for immortality with carbon-based life forms as mere hosts for immortal genes. One concludes from Dawkins’ argument that plant and animal life is random based. Randomness reinforces Taleb’s probabilistic theory.
Taleb admires Michel Montaigne because of Montaigne’s skepticism. Montaigne, in “Essays” written in the sixteenth century, refuses to rely on human senses as a reliable source of wisdom or action. Taleb’s famous theory of “Black Swan”’ (a book written by and published for Taleb in 2007) events is founded on skepticism. Taleb looks for potential negative financial events that market traders believe will never happen because they have never happened or have happened with such infrequency that they can be ignored. (Witness the collapse of the real estate market in 2008.)
Taleb touches on the world of physics to reinforce his argument about randomness. With the advent of Quantum Theory, the world of Isaac Newton forever changed. Quantum Mechanics changes human perception and measurement to what is probabilistic. Matter, at an atomic level, is in constant motion, randomly changing. Matter is there and not there; i.e. matter does not disappear but it is always in motion; always changing.
David Hume postulated in the 18th century that, contrary to the belief of Descartes, mankind is irrational; driven by emotion rather than reason. Hume’s fundamental belief in the irrational nature of humans reinforces Taleb’s argument about the randomness of life because there is no straight line between thinking and doing. The line is crooked like the synapse in a human brain that is directed by emotion; not reason. Human predictability is, at best, probabilistic because thinking is likely instinctive and, when reasoned, limited by misleading human senses.
Finally, Taleb admires John Maynard Keynes because Keynes recognized the stupidity of not modifying one’s opinion and behavior when results tell one that an opinion or consequent action is wrong. Taleb insists on not being “Fooled by Randomness” which inherently demands changing one’s mind.
Taleb argues that understanding probability is important but no guarantee of results in life or markets. Taleb particularly decries distortion by market and political pundits that correlate current events with future outcomes. News reports that say the market fell or rose because of an event in Africa or Russia are meaningless and unprovable correlations. Taleb believes in the value of quantification but in the limited sense of probability; not precise correlation. Further, Taleb argues that a wise investor places prudent bets on Black Swans that offer small losses and big wins in an unforeseeable, probabilistic future. One might add caveat emptor, unless he/she is Nassim Taleb.
As Jonathan Haidt explains in “The Righteous Mind”–the elephant of desire will do what it wants, even with a skilled human rider. Life is random because reason is always influenced by desire.