Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

People overvalue their knowledge and underestimate the probability of their being wrong.

People do not realize that the media is paid to get your attention. For a journalist, silence rarely surpasses any word.

Heroes are heroes because they are heroic in behavior, not because they won or lost.

Reality is far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands of chambers instead of six. After a few dozen tries, one forgets about the existence of a bullet, under a numbing false sense of security. Second, unlike a well-defined precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality. One is capable of unwittingly playing Russian roulette - and calling it by some alternative “low risk” game.

Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.

Those who were unlucky in life in spite of their skills would eventually rise. The lucky fool might have benefited from some luck in life; over the longer run he would slowly converge to the state of a less-lucky idiot. Each one would revert to his long-term properties.

No matter how sophisticated our choices, how good we are at dominating the odds, randomness will have the last word.

A mistake is not something to be determined after the fact, but in light of the information available until that point

Never ask a man if he is from Sparta: If he were, he would have let you know such an important fact - and if he were not, you could hurt his feelings.

Mild success can be explainable by skills and labor. Wild success is attributable to variance.

My lesson from Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.

We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.

When things go our way we reject the lack of certainty.

The epiphany I had in my career in randomness came when I understood that I was not intelligent enough, nor strong enough, to even try to fight my emotions.

The problem with information is not that it is diverting and generally useless, but that it is toxic.

If the past, by bringing surprises, did not resemble the past previous to it (what I call the past's past), then why should our future resemble our current past?

Mathematics is principally a tool to meditate, rather than to compute.

It certainly takes bravery to remain skeptical; it takes inordinate courage to introspect, to confront oneself, to accept one's limitations--Scientists are seeing more and more evidence that we are specifically designed by mother nature to fool ourselves.

Bullish or bearish are terms used by people who do not engage in practicing uncertainty, like the television commentators, or those who have no experience in handling risk. Alas, investors and businesses are not paid in probabilities; they are paid in dollars. Accordingly, it is not how likely an event is to happen that matters, it is how much is made when it happens that should be the consideration.

The only article Lady Fortuna has no control over is your behavior. Good luck.

The observation of the numerous misfortunes that attend all conditions forbids us to grow insolent upon our present enjoyments, or to admire a man's happiness that may yet, in course of time, suffer change. For the uncertain future has yet to come, with all variety of future; and to him only to whom the divinity has [guaranteed] continued happiness until the end we may call happy.

I will set aside the point that I see no special heroism in accumulating money, particularly if, in addition, the person is foolish enough to not even try to derive any tangible benefit from the wealth (aside from the pleasure of regularly counting the beans).

There is asymmetry. Those who die do so very early in the game, while those who live go on living very long. Whenever there is asymmetry in outcomes, the average survival has nothing to do with the median survival.

Too much success is the enemy, too much failure is demoralizing.

We do not need to be rational and scientific when it comes to the details of our daily life—only in those that can harm us and threaten our survival. Modern life seems to invite us to do the exact opposite; become extremely realistic and intellectual when it comes to such matters as religion and personal behavior, yet as irrational as possible when it comes to matters ruled by randomness (say, portfolio or real estate investments). I have encountered colleagues, “rational,” no-nonsense people, who do not understand why I cherish the poetry of Baudelaire and Saint-John Perse or obscure (and often impenetrable) writers like Elias Canetti, J. L. Borges, or Walter Benjamin. Yet they get sucked into listening to the “analyses” of a television “guru,” or into buying the stock of a company they know absolutely nothing about, based on tips by neighbors who drive expensive cars.

Clearly, an open mind is a necessity when dealing with randomness. Popper believed that any idea of Utopia is necessarily closed owing to the fact that it chokes its own refutations. The simple notion of a good model for society that cannot be left open for falsification is totalitarian. I learned from Popper, in addition to the difference between an open and a closed society, that between an open and a closed mind.

There is a simple test to define path dependence of beliefs (economists have a manifestation of it called the endowment effect). Say you own a painting you bought for $20,000, and owing to rosy conditions in the art market, it is now worth $40,000. If you owned no painting, would you still acquire it at the current price? If you would not, then you are said to be married to your position. There is no rational reason to keep a painting you would not buy at its current market rate—only an emotional investment. Many people get married to their ideas all the way to the grave. Beliefs are said to be path dependent if the sequence of ideas is such that the first one dominates.

common sense is nothing but a collection of misconceptions acquired by age eighteen. Furthermore, What sounds intelligent in a conversation or a meeting, or, particularly, in the media, is suspicious.

Many amateurs believe that plants and animals reproduce on a one-way route toward perfection. Translating the idea in social terms, they believe that companies and organizations are, thanks to competition (and the discipline of the quarterly report), irreversibly heading toward betterment. The strongest will survive; the weakest will become extinct. As to investors and traders, they believe that by letting them compete, the best will prosper and the worst will go learn a new craft (like pumping gas or, sometimes, dentistry). Things are not as simple as that. We will ignore the basic misuse of Darwinian ideas in the fact that organizations do not reproduce like living members of nature—Darwinian ideas are about reproductive fitness, not about survival.

The quality of a decision cannot be solely judged based on its outcome.