Fooled by Randomness
Notes on luck, success and the stories we tell ourselves
The dog under the cart
A bullock cart is rolling down a village road. Two strong bullocks pull it steadily, and the driver sits up front holding the ropes. Underneath the cart, in the cool shade between the wheels, a stray dog is trotting along.
The dog notices something wonderful. When he walks faster, the cart goes faster. When he slows down, it slows down. When he turns a little, the cart turns too. His chest swells. “Look at me,” he thinks. “I am driving this cart!”
Villagers on the roadside smile at the sight, and the dog takes it as respect. The cart rolls on, exactly as it would have without him. The bullocks keep pulling and the driver keeps steering. The dog was only ever walking underneath, in the shade, with no hand on anything.
Taleb’s whole book is about the dog and the cart. The dog isn’t stupid. He sees his own movement and the cart’s movement together and assumes one causes the other, much like a trader who rides a bull market for six years.
The world we think we live in
Taleb says there are two planets. One is where we actually live. The other is a tidier, more predictable one where most people believe they live, and where everything happens for a clear reason.
“Past events will always look less random than they were.”
That is hindsight bias. When we look back, only one version of events happened, so it feels like it had to happen. After the result, everyone is a genius. After this book, I suspect I’ll read success stories a little differently.
Is rich the same as smart?
We love to assume it is. Rich people must have done something right, so we go looking for what. Taleb pokes at a well-known study of millionaires that found they mostly worked hard and took risks. It sounds convincing. But plenty of people who went bankrupt also worked hard and took risks, and nobody wrote a book about them. Saying that all millionaires worked hard is not the same as saying that hard workers become millionaires.
Two friends and a big house
Arjun and Kabir studied together in college. Twenty years later, Arjun lives in a huge house with a garden and two cars. Magazines call him a visionary. In interviews he says he wakes up at five, trusts his gut and never fears risk, and everyone nods along. Kabir is a careful engineer who works just as hard, reads more than anyone in his circle, and lives a comfortable but ordinary life. When people compare them, the verdict comes easily. Arjun is the smart one.
Here is the part that never makes it into the interview. In 2008 Arjun put most of his savings into a plot of land on the edge of the city, because a cousin said something might happen there. He hadn’t studied it much. Ten years later a highway and a metro line came right beside it, and the price went up many times over. That same year, Kabir spent months researching and bought shares in a company that looked rock solid. Then a new regulation quietly killed its market.
Same effort. Same brains. Different luck. Now replay their lives a hundred times. In many of those replays the highway goes somewhere else, and Arjun becomes the man who lost his savings on a hunch. Same gut feeling, opposite headline.
Taleb has a darker version of this. Put thousands of people into a game of Russian roulette that pays out if you survive. A few will end up very rich, and there will be a very large cemetery. We only ever meet the survivors.
So we can’t say rich people are intelligent and poor people are not. Too many things play a role: randomness, being the right person at the right time, geography, education and more. Reserving judgement is safer. And yes, chance favours the prepared, but I also believe a lot of things simply happen in random mode.
None of this makes effort useless. Taleb is clear that skills count, and that most success comes through a few windows of opportunity, so failing to grab one can hurt badly.
His advice on that is refreshingly short:
“Take your luck!” Prepare, work hard, and stay humble about the part you didn’t control.
Counting the monkeys
One of my favourite ideas in the book is also the simplest. If enough people try something, somebody will look brilliant purely by chance. Taleb says he has rarely seen anyone stop to count the monkeys.
The coin toss champion
At a college fest, 1,024 students enter a coin toss contest. Heads and you stay in. Tails and you are out. After the first round, 512 are left. Then 256. Then 128, and so on, until after ten rounds one student is still standing, having thrown ten heads in a row.
The crowd goes wild. A reporter asks for his secret. He thinks for a second and says he always tosses with his left hand and stays calm. Next year, half the college is tossing left-handed.
Nobody asks about the 1,023 who lost. Nobody points out that with 1,024 players, one perfect run was exactly what you would expect before the first coin was flipped.
Taleb runs the same idea with 10,000 fund managers who each have slightly worse than even odds every year. After five years, 184 of them still have a perfect record. They get the magazine covers and the confident interviews. Nobody mentions the other 98 percent. The more players there are, the more stars you will see.
Writer Girish Kuber points to a version of this that many Indian families will recognise: the belief that students go to America and become CEOs. We hear it so often that it starts to sound like a plan.
The students who fly to America
Every family knows the headline. An Indian student flies to the US, works his way up and ends up running a big company. Parents repeat it. Coaching institutes love it. Go abroad, become a CEO.
Now count. Not one student goes, but thousands, year after year, hundreds of thousands over time. Out of a crowd that size, a few reaching the very top is not a miracle. It is roughly what you would expect.
And what about Meera, who went with a loan, finished her degree, looked for a job for months and came back to India when the visa clock ran out? Nobody puts her on a poster. Nobody invites her to give a talk on how she did it.
We only ever ask the winners how they did it. The question we forget is how many went, and how many came home with nothing to show for it. That is counting the monkeys.
The richest king and the wise man
Croesus and Solon
Croesus, king of Lydia, was so rich that we still say “rich as Croesus”. One day he showed the Athenian wise man Solon his treasures and asked who he thought was the happiest man in the world. Croesus expected to hear his own name. Solon named a few ordinary Athenians who had lived decent lives and died well.
Croesus was annoyed, so Solon explained. Life is long and full of surprises, he said. A man can be happy today and ruined tomorrow, so don’t call anyone happy until you see how the story ends. Years later Croesus lost his kingdom to the Persians, and facing death, he remembered those words.
What Solon understood is what Taleb calls the skewness problem. It doesn’t matter how often you win if a single loss can wipe you out. The traders in the book learned this the hard way.
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Take Carlos, a bank trader who specialised in emerging-market bonds. He had earned around 80 million dollars for his bank over several years and then lost 300 million in a single summer, in 1998.
Option sellers get the same treatment: months of steady income, then a few hours that erase all of it. Anyone in supply chain will recognise the feeling. A network that runs smoothly for years looks brilliant, right until the one disruption nobody planned for.
Comparing ourselves with the wrong crowd
Early in the book, Taleb introduces two neighbours who are both traders. Nero is careful and sceptical. He keeps his own money in treasury bonds and says he is shooting for longevity.
John is the flashy one, with the huge house, the sports cars and a hot streak that looks like genius.
Nero knows John isn’t as sharp as he looks, and he still feels the sting every time he sees that house. A few years later, in 1998, John lost his job and nearly everything he had.
Then there are Marc and Janet, a couple who live in a Park Avenue co-op. Marc went to Harvard and then Yale, and financially he is ahead of 99.5 percent of Americans. Yet among his neighbours he ranks near the bottom, and Janet, his wife, feels like a failure every time another woman walks past in bigger diamonds.
Taleb’s explanation is survivorship bias again. The people who failed don’t live in that building. When you live among winners you only see winners, so you end up comparing yourself with a group that has already been filtered.
His advice is wonderfully practical: move somewhere the comparison is fairer.
Comparison leads to unhappiness. Nero could see that John was riding luck, and it still hurt.
Taleb puts it in one line:
“Intellectual contempt does not control personal envy.”
Today the Park Avenue lobby fits in your pocket. Every scroll shows you the winners and never the cemetery.
The Firehouse Effect
This term comes from Marty O’Connell, a veteran trader and friend of Taleb, quoted in the book. He noticed that firemen with a lot of downtime and a lot of conversation end up agreeing on all sorts of things an outsider would find ridiculous. Even their political views become alike. It is what happens when the same few people talk to each other for too long.
It explains what happened to Carlos, the bond trader from earlier. When the market started to fall in 1998, his friendly sources told him it was just one hedge fund selling off its inventory. It was comforting, and it came from people who saw the world the way he did. The dip looked like one more chance to buy, as it always had. Taleb spots the giveaway: Carlos kept pointing out that other traders had also gotten into trouble, and a good trader should be doing what others are not.
A room full of people nodding is not evidence. It is an echo, and worth remembering in any team that reads the same feeds and trusts the same experts. When things go wrong, the room has an answer ready:
“You attribute your successes to skills, but your failures to randomness.”
If they win, they are smart. If they lose, it was the market or the government.
Too much noise
Taleb has a funny picture of a dentist checking his investments. Look at a portfolio minute by minute and you are mostly watching wiggles, not progress. Over an eight-hour day you get about 241 pleasant minutes and 239 unpleasant ones, and you feel every single one. The same dentist did better with monthly statements. Yearly might be even better.
The news works the same way. The media is paid for your attention, and for a journalist, silence rarely beats words.
Taleb’s example: mad cow disease got a decade of headlines while killing hundreds at most, and car accidents killed several hundred thousand with far less drama. He asks what the thirty hours you spent on news last month helped you predict.
Mine would be close to nothing.
I agree, up to a point. People do get addicted to news that has nothing to do with their lives, so the middle ground is to be picky: a few sources you trust, checked on your own schedule. It’s the same with new inventions. Taleb is suspicious of the new, and I see the noise too, but the jewels are in there somewhere. The only options are to dig, or to wait and see which ones last.
So how do we reduce noise in a world drowning in data?
Taleb’s own trick is to avoid information and read poetry instead, since anything truly important will find its way to him.
Gentler versions: look less often, look at longer stretches, and ask whether it will still matter in a year.
Sometimes not knowing helps
Near the end of the book Taleb makes a gentler point: randomness has some benefits too. Not knowing exactly what will happen can make life better, not worse. That sounds odd, so here is his example.
The 7:08 train
Picture a friend who lives in the suburbs and works in the city. You meet him for dinner on a weeknight. He knows the train timetable by heart: the express leaves at 7:08, and the next one is a slow train at 7:42, which he hates. The whole meal is played with one eye on the clock. At 6:58, in the middle of a conversation, he shakes your hand, rushes out and leaves you with the bill and half a coffee.
Now take away the timetable. Suppose he only knows that trains leave roughly every thirty-five minutes. He would let dinner run its natural course, stroll to the station and take whatever train came next. He would get home maybe fifteen minutes later, and he would have had a much better evening.
Taleb’s point is that not knowing can protect us from ourselves. The timetable didn’t improve the man’s evening, it made him rush. Sometimes more knowledge makes us tighter and more anxious, not wiser. He also says you can choose to be poor but free with your time, or rich and as dependent as a slave. I somewhat agree, that is easy to say and hard to live, because it depends on where you live and what your culture expects.
Holding beliefs lightly
The idea I keep returning to is the philosopher Karl Popper’s. No number of white swans proves that all swans are white, but a single black swan is enough to disprove it. Taleb jokes that he examined a president’s life, some 21,000 days without dying, and declared him immortal with high statistical confidence.
It is funny because it is how many forecasts get made: past data treated as proof. A good theory, says Popper, must say what would prove it wrong.
After reading this I would put it this way:
As of now I believe this. If I get new information, I am ready to believe against it.
Dignity, and what I’m taking away
Taleb ends on something gentler than I expected. We can’t control randomness. What we can control is how we behave when it hits us. He borrows from the Stoics. Be courteous to your assistant when you lose money. Don’t blame others. No self-pity.
The more of these stories I read, the surer I am of one thing. If I am ever successful, I will say it was partly luck. If I fail, I will be okay with that too. Realising that some things are much bigger than us keeps us humble and calm.
And these words are wise, but only if we act on them, not just read them.
That is what I’m taking from Fooled by Randomness: a little more humility when things go well, a little more kindness to myself when they don’t, and much less patience for tidy explanations of other people’s success.
So here is a question for you. Think of the best thing that ever happened to you. If you replayed that year a hundred times, in how many of those replays would it happen again?
