Fooled by randomness


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Presentation on a book "Fooled by randomness" by NN taleb

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  • Theory of determinism- everything can be determined with certainty from pervious patterns, accidents never happen and everything is reason basedTheory of randomness- nothing can be determined with 100 % certainty, accidents do happen and everything is not reason based
  • Mediocristan: many prizesExtremistan: No second prize.Technology, Singers, Movie vs. plays.
  • Monkey who typed iliadwill not type oddessy
  • Explains the risk, its impact and role of randomness in risk- Russian roulette George sorrow(how I make so much money by betting against pound)Rakeshjhunjhunwala(how I make so much wealth)..
  • Normal distribution curve never holds good in actual practicesThere will always be some skewness.There will always be two events A and B, one with high probability of occurrence and other will less probability of occurrence, the one with less probability will have 4 times the impact
  • Mean, Median, Sigma value, z value, t value ll not be applicable in real life decisions.
  • Toss a coin for 99 times and if u ll get heads all the times then what is the probability of getting heads on 100th time ?
  • When investing in stock market we know about company’s financial position as published in leading newspapers and available on internet but sometimes we don’t know managerial problems within the company.
  • Noise : random change in valuesInformation : change because of some reason
  • Retired dentist , 241 Vs. 239 time in a day.
  • In Black Swan he talks about rare event and damage caused by this rare events and also predicts the down fall of the market of 2008-09.In The Bed of Procrustes- Philosophical and Practical Aphorisms. He says we humans, facing limits of knowledge and things we do not observe, the unseen and the unknown, resolve the tension by squeezing life and the world into crisp commoditized ideas.
  • Fooled by randomness

    1. 1. Fooled by RandomnessThe Hidden Role of Chance in Life and in the Market By: Nassim Nicholas Taleb Presented By: Nikunj Patel (10029) Piyush Kakkar (10030)
    2. 2. Nassim Nicholas TalebAn MBA from Wharton and a PhD from the University of Paris.He is currently a Distinguished Professor of Risk Engineering atNew York Universitys Polytechnic Institute and Visiting Professorof Marketing (Cognitive Science) at London Business School.
    3. 3. Outline of the bookBook is divided in three parts:• Part 1: Solon’s Warning• Part 2: Monkey’s on Typewriters• Part 3: Wax in My Ears
    4. 4. 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
    5. 5. Part 2: Monkey’s on Typewriters• Explains the human biasness towards the randomness• Explains the luck factor and probability blindness of human beings
    6. 6. Part 3: Wax in My Ears• How human beings deal with the uncertainties/randomness
    7. 7. Theory of Determinism Vs.Theory of Randomness
    8. 8. Mediocristan Vs.Extremistan
    9. 9. Luck or Skill???Ten Thousand Monkeys on Typewriter
    10. 10. Past is Imperfect Guide of Future
    11. 11. Black Swan EventSomething did not happen till nowthat does not mean that it will not happen in the future
    12. 12. Silent EvidenceWe always try to learn from the winners
    13. 13. Process is Important… Good Bad Process Process Good Skilled LuckyOutcome Bad Fool who UnfortunateOutcome deserves that
    14. 14. Frame of ReferenceWe always try to relate our success with others
    15. 15. Useless Bell...Life is not always 50:50
    16. 16. Taleb’s DistributionHigh probability of a small gain, and a small probability of a very large loss
    17. 17. Learned statistics ??? Please… Unlearn itMost Dangerous Knowledge Given by Professors and Teachers
    18. 18. Incorrect application of statisticsDr. John(statistician) & Tony(Layman)
    19. 19. What we don’t know ismore important than what we know…Our decisions depends on only what we know.
    20. 20. Noise ??? Information
    21. 21. Timescale and Noise Probability ofTimescale 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%
    22. 22. Madhucon Projects Ltd.
    23. 23. Take Your Decision 25 % How Much??? 10 %
    24. 24. UnpredictableComparison Analyze Outcome Yes
    25. 25. Black Swan Event Don’t Know Past Vs. futureDecision Noise/ Information Silent Evidence Taleb Distribution
    26. 26. Our Conflicts• Statistics Vs. No Statistics• Theory Vs. Reality• How to identify Noise (Randomness)
    27. 27. 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.
    28. 28. Any Noise???