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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)
Nassim Nicholas TalebAn 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.
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
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
Part 2: Monkey’s on Typewriters• Explains the human biasness towards the randomness• Explains the luck factor and probability blindness of human beings
Part 3: Wax in My Ears• How human beings deal with the uncertainties/randomness
Theory of Determinism Vs.Theory of Randomness
Luck or Skill???Ten Thousand Monkeys on Typewriter
Past is Imperfect Guide of Future
Black Swan EventSomething did not happen till nowthat does not mean that it will not happen in the future
Silent EvidenceWe always try to learn from the winners
Process is Important… Good Bad Process Process Good Skilled LuckyOutcome Bad Fool who UnfortunateOutcome deserves that
Frame of ReferenceWe always try to relate our success with others
Useless Bell...Life is not always 50:50
Taleb’s DistributionHigh probability of a small gain, and a small probability of a very large loss
Learned statistics ??? Please… Unlearn itMost Dangerous Knowledge Given by Professors and Teachers
Incorrect application of statisticsDr. John(statistician) & Tony(Layman)
What we don’t know ismore important than what we know…Our decisions depends on only what we know.
Noise ??? Information
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%
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Take Your Decision 25 % How Much??? 10 %
UnpredictableComparison Analyze Outcome Yes
Black Swan Event Don’t Know Past Vs. futureDecision Noise/ Information Silent Evidence Taleb Distribution
Our Conflicts• Statistics Vs. No Statistics• Theory Vs. Reality• How to identify Noise (Randomness)
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.