The document provides a summary of Nassim Nicholas Taleb's book "Fooled by Randomness". It discusses some of the key concepts in the book, including: (1) how chance and randomness play a larger role in life outcomes than people realize (2) the impact of survivorship bias in only seeing successful outcomes (3) how small events can have disproportionately large consequences in non-linear systems. The book argues that people tend to overestimate their abilities and fail to properly account for the role of randomness, luck, and uncertainty in their successes and failures.

1. Summary – Fooled by randomness
Hidden Role of Chance in Life and in the Markets
The book was written by a mathematics and statistics adept trader / academic / philosopher
who explore fun and interesting questions about probability, causation, psychology, and life.
Introduction of the Author
Nassim Nicholas Taleb is a Lebanese–born essayist, scholar and former practitioner of
mathematical finance. He is best known as the author of the 2007 book ‘The Black Swan’.
Taleb has 3 distinct careers. Firstly, he is a bestselling author with 2.7 million copies in
various languages. Secondly, he is a university professor in Risk Engineering, a scholar, an
epistemologist and a philosopher of science. Finally, he is a former senior Wall Street trader,
risk expert and a practitioner of mathematical finance.
Introduction
This book mainly subjects on the fact that human beings are not at all perfect at
judging probabilities. Taleb has been critical of the of the finance industry, so moat part of
the book contains financial probabilities, and his argument is always to the point and requires
no knowledge of the market. This book revolves around many people misjudging risks and
probabilities (in many streams). Taleb hits pretty hard on what he calls ‘data snoopers’, his
term for people who back fit theories to existing data. Taleb is an activist and a promoter of
what he calls a ‘Black Swan robust’ society and an aggressive ‘stochastic tinkering’ as a
means of scientific discovery. Taleb’s writing style mixes narrative fiction and short
philosophical tales with historical and scientific commentary.
One of the most notorious examples is the “Bible Code”(which has been
thoroughly fake), but Taleb argues that analysts who spend their time trying to find patterns
in historical market data are no different. If you consistently work hard, you will undoubtedly
find apparent regularities, which can be compelling enough when seen in isolation. In
context, though they result into nothing, but meaningless statical irregularities.
Taleb’s best example of poor probability is the infamous ‘Survivor Bias’, which
states that human’s tendency is to be disproportionately impressed by success. We always
give a deaf ear to the reality that, for one success story, there are many failures. But, we
rarely hear about the failures. So, it is all a game of numbers: Out of 10,000 traders, very few
are statistically bound to be successful, though they are nothing than lucky idiots.
Taleb also has some fun at the expense of economists and analysts, especially those
whose predictions turned out wrong, but who claim that the theories were in fact right, and
the facts simply weren’t to be of that sort. This is what Taleb calls ‘Denial of History’, and it
is common among investors and gamblers.

2. This book is written in a casual and funny manner. Overall, the author’s points come
through loud and clear. Ironically, for a man who advocates self-doubt, Taleb is very self
confident.
Chapter1
This part derives its name from the tale of the Solon where a wealthy king boasts in front of
Solon about his wealth and Solon says “The uncertain future has yet to come, with all variety
of future; and him only to whom the divinity has guaranteed continued happiness until the
end we may call happy.” In other words, “it ain’t over till it’s over.”
This part discusses how luck plays an important role in deciding the wealth of an individual
and how he could very easily lose all his wealth due to luck which he has gained due to luck.
Thus we can never say that just because someone is successful right not he will always be
successful in the future. The past is never an exact indicator of the future and luck never has
bias. It will always favour both the sides
Chapter 2
In this chapter the author extends his ideas to give example of game by chance and the money
earned due to hard work. Author mentions that when your success had nothing to do with you
it is of no importance and not at all reliable as you are successful due to mere luck. All that
you are doing is playing with probabilities and nothing else. To contradict this example
author gives an example of Dentist who earns the same amount due to his own skill and
diligent practice and hard work. This success is more reliable and self sustaining as it has to
do with the individual itself and not by luck.
Chapter 3
This chapter brings to light the superiority of the Monte Carlo technique of simulations. This
according to author is more superior to the past analysis which does not give us the complete
picture of hoe the things can go wrong. This technique can more reliably and accurately
present to you the associated randomness with your average result. Less the variability in the
set of results given by the simulation more it is resistant to randomness.
Chapter 4
This chapter says that using rationality is complete non-sense in markets and not at all an
indication of intellect. The author gives an example of abstract artworks to describe and says
that only those things which can harm us and threaten our survival have to be thought out
with rationality. For all other things like markets which are ruled by randomness using
analysis is a mere waste of time and simulations can mean a lot.
Chapter 5
This chapter focuses on variety of characteristics seen in the fools of randomness. He says
that don’t overestimate the accuracy of your beliefs. You may not be right every time because
you have been mostly right in the past. Always asses your ideas and make sure they still hold
true. Just being loyal to your ideas which once worked does not help in markets. Always have

3. a back-up plan if the things do not go as they were planned. If there is no plan for negative
things then one such event could be catastrophic. Be critical about each positive thing as well
and accept your mistakes as early as possible as before they grow bigger.
Chapter 6
This chapter throws light on how median induces asymmetry in thinking and how it can be
countered. The author mentions that though the percentile values on both sides of the median
are the same the pay-offs may not be the same. Hence it is always advisable to use the
expected values. He illustrated it by giving the example of a patient’s life.
Chapter7
Here the author again turns back to his black swan philosophy to corroborate his point about
black swans. “No amount of observations of white swans can allow the inference that all
swans are white, but the observation of a single black swan is sufficient to refute that
conclusion.” He says that statistics is very good measure to take decisions but highly
destructive if used to manage risks and exposures.
Chapter 8
This chapter extends the philosophy of the previous chapters based on the concept of
“Survivorship bias”. This concept says that we are most likely to see the white swans i.e. the
people who have followed certain path and have succeeded but we fail to see a bunch of
those who failed after following the same path.The main reason for this is only the bright
things are stored for the future and we can only hear success stories and what was the
strategy. The failures are not recorded or else the people who failed do not show up at all.
This induces the survivorship bias which contaminates the decision making process. It
becomes very essential to look at those who failed using the same strategy so that the
decision making is clear with the alternative consequences also to the fore.
Chapter 9
This chapter further gives illustrations to put forth the concept of Survivorship bias more
strongly. The key learnings form this chapter are that if there are a large number of people
who have done certain things or have applied certain strategy and have failed (i.e. large pool
of poor performers) then there will be a few people who will turn out successful and people
tend to confuse that they have skill rather than understanding the fact that this is simple
deviation from normal.The success of the person tends to be spectacular when there is large
number of people who have tried certain thing and failed. This is due to the fact that larger
the original pool of people longer the survivors had to survive and more successful and
skilful they seem to be.
Chapter 10
This chapter brings out the non-linearity in the life and pay-offs of small things. Small
advantages often translate into disproportionately large payoffs, or simple randomness can
lead to the same thing without any advantage at all. The author explains it with an interesting
example.

4. When a sandcastle is built each grain of sand goes on adding to the castle and its height and
strength. This is linear behaviour. Then suddenly one grain of sand and the whole tower is
floored. That’s what the life is like, non-linear.
This is the most dangerous phenomena as we do not realize that small amount of randomness
goes on building as we take each step further and so the success as well as failure goes on
becoming greater and greater. These nonlinearities of life cause us to confuse success with
skill.
Chapter 11
This chapter discusses the biases we have in our thinking and how we tend to ignore the
negatives of a particular aspect while taking decisions. The chapter gives an example of
cancer patient. When told that there is 72% chance that he will live for next 5 years he is very
happy, forgetting the fact that there is 28% chance that he will die. According to the author
knowing the other side is half the battle won. When we are aware of the cons of the
transaction automatically the decision biases get removed.
Chapter 12
The author now starts to provide the solutions or rather work-around for your predisposition
to get fooled by randomness. He modestly admits that it is humanly not possible to give up
emotions and rely purely on numbers but it is possible to have a logical base to your decision
making. The author just wants to tell the readers to avoid having gamblers ticks and if at all
they have it, then realize them and set up systems to deal with them such as preventing access
to information which is filled with noise, rather than signal (e.g. the 24-hour financial news
network) if these cause you to react in a superstitious manner rather than a logical manner.
Chapter 13
People tend to fall in love with their strategies and ideologies which they have built with lot
of efforts and over a long period of time. The ideologies have made them successful and
hence after a certain period of time people start blindly following them. According to the
author this is the most dangerous thing as the environment is always changing. We have to
adapt to the environment to become more successful or else the randomness will increase the
probability of failure.
Chapter 14
Author introduces us to the word Kaizen which means gradual improvement in slow steps.
This means continuous assessment of the failing as well as successful processes and bettering
all of them to achieve improved results. The reality of life is that we are dominated by odds.
Randomness will occur. The best we can do is plan for contingencies so as to reduce our
downside exposure.