Fooled by randomness
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Fooled by randomness
- 1. Fooled by Randomness The Hidden Role of Chance in Life and in the Market By: Nassim Nicholas Taleb Presented By: Nikunj Patel (10029) Piyush Kakkar (10030)
- 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 at New York University's Polytechnic Institute and Visiting Professor of Marketing (Cognitive Science) at London Business School.
- 3. Outline of the book Book is divided in three parts: • Part 1: Solon’s Warning • Part 2: Monkey’s on Typewriters • Part 3: Wax in My Ears
- 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. Part 2: Monkey’s on Typewriters • Explains the human biasness towards the randomness • Explains the luck factor and probability blindness of human beings
- 6. Part 3: Wax in My Ears • How human beings deal with the uncertainties/randomness
- 7. Theory of Determinism Vs. Theory of Randomness
- 8. Mediocristan Vs. Extremistan
- 9. Luck or Skill??? Ten Thousand Monkeys on Typewriter
- 10. Past is Imperfect Guide of Future
- 11. Black Swan Event Something did not happen till now that does not mean that it will not happen in the future
- 12. Silent Evidence We always try to learn from the winners
- 13. Process is Important… Good Bad Process Process Good Skilled Lucky Outcome Bad Fool who Unfortunate Outcome deserves that
- 14. Frame of Reference We always try to relate our success with others
- 15. Useless Bell... Life is not always 50:50
- 16. Taleb’s Distribution High probability of a small gain, and a small probability of a very large loss
- 17. Learned statistics ??? Please… Unlearn it Most Dangerous Knowledge Given by Professors and Teachers
- 18. Incorrect application of statistics Dr. John(statistician) & Tony(Layman)
- 19. What we don’t know is more important than what we know… Our decisions depends on only what we know.
- 21. Timescale and Noise Probability of Timescale 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%
- 26. Take Your Decision 25 % How Much??? 10 %
- 27. Unpredictable Comparison Analyze Outcome Yes
- 28. Black Swan Event Don’t Know Past Vs. future Decision Noise/ Information Silent Evidence Taleb Distribution
- 29. Our Conflicts • Statistics Vs. No Statistics • Theory Vs. Reality • How to identify Noise (Randomness)
- 30. 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.
- 31. Any Noise???
Editor's Notes
- 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.