“Fooled by Randomness”

My eldest daughter gave me the book “Fooled by Randomness” Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb and I have enjoyed reading it “so far.”

The premise of the book is that life is “random” or at least in large partt driven by likelihoods and probabilities.  Those of you that actually know me, know that I appreciate the random nature of life, and that I believe no outcome is “certain.”  Even knowing that, intellectually, I find myself reflecting on the various lessons in this book, particularly after my recent automobile accident.  In that accident, I started second guessing my decisions.  What if I had gone to Home Depot first?  What if I had decided to go back to the main road to get between stores?  What if I had waited a few seconds before leaving Lowe’s?  What if I hadn’t asked for help, and had left Lowe’s 2 minutes earlier?

The timing of receiving the book (and reading it) helped my put all this in perspective.  All those decision points, and actions arising from those points, are what quatum physicists would call “alternative realities” (and some would tell you they all occured, in parallel universes!)  But there is little one can do to control the outcome.

According to this book (at least, up to my current point in reading it) we see patterns in most things, after the fact.  We play an elaborate game of connect the dots, to make “sense” out of what happened.  We ignore the role of chance, the importance of sheer “randomness” in the events.  The author writes:

Past events will always look less random than they  were (it is called the hindsight bias). I would listen to  someone’s discussion of his own past realizing that  much of what he was saying was just backfit  explanations concocted ex post by his deluded mind.

I realize that, in some way, (perhaps some warped way) I am taking solice in the fact that the accident was just a statistical probability that for some reason, on Thursday, decided to “realize” itself on the side of my car. BAM!

Now, that said, the book also plays a role in explaining the importance of “managing” randomness.  In the book, the author discusses a man, Nero who, as a trader in Chicago, learned early on to play the “game” of moderation.  Nero (being a statistician by education) understood the role of probability even in the market, and understood even better the impact of the “statistically rare event” or what the author calls “The Black Swan.” (He then later writes a longer book on this topic “The Black Swan: The Impact of the Highly Improbable — This one is on my shelf and will be next in my reading queue).

According to Taleb, Nero chose to limit his gains by not seeking the high rewards, because those carry with them the greatest risk, in the event of the “statistically unlikely” black swan. In my accident, Honda helped moderate the risks by providing side curtain and seat-embedded airbags.  We were t-boned, but my wife (sitting on the side that got hit) doesn’t have a single scratch and given the extent of the damage to the door, we believe the airbags protected her.

These are the sorts of things that we teach our students in decision analysis.  Assess the probable outcomes, and the likelihood of the event.  Understand the possible gains and losses.  Then make your decisions based not on the certainty of your ability (flawed) but on your knowledge of the impact of randomness.

This book arrives at just the right time to console me, to remind me that sometimes “stuff happens” and it’s just random.  Accept it, acknowledge it, and plan as best you can.  It’s a great read, and I highly recommend it to all.  But it leaves me with this question:  If it’s arrival was truly at “just the right time” —

Was it’s arrival… Random?


3 thoughts on ““Fooled by Randomness”

  1. Steve:

    Sorry to hear about your “unplanned event!” Glad that the net effects were/are manageable . . . assumption based on your posting above.

    Determinists would argue, of course, that nothing is “random” at all. Certain naturally ocurring phenomena/behaviors can be *modeled* as random events . . . sometimes quite usefully . . . but that does not mean that they are truly random; just that our understanding of the underlying causality is incomplete.

    Is this just a “distinction without a difference?”

    I think not.

    Consider the case of the deeply religious scientist . . .

    The pursuit of science, is, after all, the removing of uncertainty in nature. When we remove all of the uncertainty, we have found the underlying order that does truly “explain everything.”

    We have also found . . . ?

  2. Thanks again for commenting, Steve!

    I must say, as I read through the book, I struggle with the tension of what is random, and what is “not.”

    Much of his examples are based on the market, and he is right, there seems to be much “noise” when you watch market prices on a second by second basis. Of course, transactions aren’t “accidental” (at least, we hope not) and thus they are purely “random” actions. The vast majority of trades are made through a decision, and thus are in that sense deterministic. So we are left with what appears to be random, but was by most measures “deterministic” (or at least deliberate).

    I believe this is where we step back and seek out the overall trend, or order, in the Universe.

    Therein lies the challenge of evolution: when scientists seek to explain the “choices” they inevitably use the language of “decision” which implies the existence of a “decider.” Hmmm….

  3. Steve:

    When pursuing my terminal degree, some good freinds of ours (both our sons in Tae Kwon Do, scout troop, etc. etc. together) were 1. A molecular biologist; and 2. A geneticist. Both research faculty at MSU.

    Neither of them particularly religious; or, for that matter, “spiritual.”

    So one fine evening over wine and cheese we start talking about “Intelligent Design.”

    As the sun sank lower in the evening sky, and as the stars came out, I learned a whole lot about human DNA- and the modern taliban in the USA.

    There are- I forget the word, but it wasn’t “recessive” per se but a similar concept- there are thousands of potential mutations in human DNA that can be turned “ON” or turned “OFF.”

    Like gills. Fins. The ability to breathe an air rich in CO2. or rich in Methane (!). The ability to survive in very. very, harsh climates by current human biological standards.

    Two questions were pondered that night; one small, one big. The small question was already being investigated and discussed at international conferences. The small question is: What are teh triggers to turn these mutations on and off; how can we manipulate these embedded genome clusters?

    The large question- which is absolutely, 100% taboo (our freinds- both people of color- jokingly referred to the question as the “biological science equivalent of shouting the N word at a Black Panther meeting in Chicago”) was this:

    How did those sequences get in there in the first place?

    What is the *evolutionary* explanation for an a priori sequence of genes that would lead to a (non random) mutation of the basic human organism to allow it to survive across a wide range of environmentally deadly circumstances?

    We sipped our wine and wondered. And talked about pre-cambrian biological sophistication. And negative entropy.

    And how, in fact, by seeking answers to mysteries; by chasing randomness out of our understanding of the physical world around us, we were really seeking- and finding- God.

    Now *this* is a concept much too large for a whole lot of very (seemingly) well-educated folks.

    Thomas Aquinas, call your office . . .

Leave a Reply

Your email address will not be published. Required fields are marked *