Book Review: Fooled by Randomness by Nassim Taleb

Spoiler Alert

I first came to know about Taleb years ago when I read his Dynamic Hedging. It was a great book with clarity and real-world wisdom that is rarely found in other option trading texts.

This book (and I believe the others of his), however, is completely different. I was hoping that despite the difference, Fooled by Randomness would still be tangentially related to option and trading, but the hope did not materialize. It is fair to say that the whole 300-or-so-paged book can be summarized as

1. The signal-to-noise ratio of our media is low, if not zero;
2. Trading and investing are perfect examples of fields containing a huge random component;
3. A common problem among quants/financial economists is that they see market dynamics as something on which a descriptive/positive theory can be posited (think physics);
4. Human mind is terribly bad at thinking in probabilisitc terms. In particular, emotions usually lead one into wrong conclusions/bad decisions.

and some other minor points

I suppose these points are worth the discussion, although I would love to see them being explored at greater depth. And as mentioned eariler, you don't see much discussion in the context of derivative trading, which is a pity. Instead, too many sections are spent in recounting anecdotes and stories, ancient or modern, that may or may not be necessary.

All in all, the book is an easy read and I did get something out of it. Considering that Black Swan was published later than Fooled by Randomness and enjoys an inferior rating, I should pass on that and spend my time re-reading Dynamic Hedging instead.

http://www.amazon.com/Fooled-Randomness-Hidden-Chance-Markets/dp/1400067936/ref=sr_1_4?ie=UTF8&qid=1345545225&sr=8-4&keywords=taleb