Fooled by Randomness - Taleb Nicholas Nassim

Often Luck is preceived as skills - lucky idoits.
Benefit from rare events, feast on a market crash.
Lottery winning Janitor and Dentist - consider 1000 lives for each, in 999 Janitor remains Janitor and in 1000 Dentist remains Dentist,
Quality of decision cannot be judged by the outcome (only losers accept this), winners will always think otherwise.
10Mn earned thro Russion Roulette is not same as 10Mn earned thro say dentistry
Black Swan problem - u will conclude that all swans are white after examining say 4000 white swans,this will go wrong the day -u spot the first black one.
We admire heros who have won many wars, they might not have won all wars they fought or been successful in everything that they did. They are not heros because they won wars, they are heros because of their heroic behaviour.
Denigration of history - gamblers, traders and decision makers often believe the sort of things that happen to others would not happen to them.
Ergodicity - Very long sample paths (under certain conditions) will resemble each other, skilled unlucky folks will eventually catch up with the lucky ones.
Distilled thinking - thinking based on information around which is stripped of the meaningless but diverting clutter (Noise).Amist all the noise - getting useful info is like searching for a needle in a haystack. Avoid news pollution.
Proability of making money at different scales:
1 year-93%, 1Qtr- 77%, 1Month- 67%, 1Day- 54%, 1Hour- 51.3%, 1Min- 50.17%, 1Sec- 50.02%.
Don't look at your portfoilio often - apply above rates for happiness on viewing portfolios. (pangs)
Over a short time increment - one observers the variability of the portfolio not the returns.Our emotions are not designed to observe this.
Turing test - A computer can be said to be intelligent if it can fool a human into mistaking it for another human.
Reverse Turing test - A Human is said to be unintelligent, if his speech can be replicated by a computer which fools humans into believing it was written by another human.
Traits of people (fooled by randomness):
*An overestimation of the accuracy of their beliefs in some measure either economic or stastical.
*A tendency to get married to their position
*A tendency to change their story (started as trader - lost - changed story to being an investor)*No precise gameplan ahead of time
*Absence of critical thinking expressed in absence of revision of their stance with 'stop losses'
*Denial
The Median is not the message. Median of people dying out cancer is 8 months. Some die within 8 months, some live for full life. Proability (chances of the event) and expectation is proability X payoff.
Markets are assymmetric- so captialize on rare events (low proability) with huge payoffs (= big expectations).
Past performance is no indication of future performance.
Rare events are always uncertain and unpredictable.
Crisis hunters.
Dealing with what we do not know is more critical than dealing with what we know.
Pascal's Wager- Optimal strategy for humans is to believe in god. If god exists the believer is benefited, if not the believer does not lose anything.w.r.t to markets - Statistics and econometrics are like God.
If infinite Monkeys are put on a typewriter- it is almost certain that one of them will type a classic,but can we bet on that monkey doing another classic?
It is very unlikely for someone to consistently perform considerably well, without his doing something right.
Luck is most frequently the reason for extreme success.
There is a difference between "finding of absence" and "absence of findings"
Life is unfair in non-linear way. A small advantage can payoff disproportionate payoffs or a small help from randomness can lead to a bonanza.Chaos theory.Example of the actor who became very famous. Example of QWERTY keyboards. This is called path dependent outcome. MS another eg, because some ppl used MS, others joined in and this went on and on (network externalities).
Chance events coupled with positive feedback rather than technological superiority will determine economic superiority.
Buridan's donkey- Breaking minor stalemates in life by randomness (flipping a coin).
We are proability blind - our brains cannot handle this.Eg: IF we have to choose between Goa and ooty for holiday with a 50% probabilty for each, we cannot imagine half our body in Goa/ooty, we tend imagine only about one state and decide the holiday, though it may be irrational. Linear combination of two states. We do the same thing in markets as well.We cannot easily see the collection of possible outcomes of the portfolio with naked eye.
Normative science- offers prescriptive teachings - it studies how things should be.
Positive science- based on how people are actually observed to behave.
Biologically - we are not designed to understand things, we are only designed to survive and procreate.
Confidence matters more than estimates or forecasts in opionions.
Put Wax in your ears to avoid hearing what you would have heard and reacted to otherwise, like a angry driver yelling at you on the road or some fellow offering tips on stocks /analysis of stock market on TV.
It is harder to act ignorant than to act smart
Brain and instinct(heart) need not act in concert. eg: Smoking!
We may be programmed to build a loyalty towards ideas in which we have invested time.
Our ideas are like our children.There is no method to predict the market or its attributes.
No matter how good we are managing the odds, randomness will have the last word.
Have "Grace under pressure",be dignified.
Be courteous to assistants (esp: when you lose money), try not to blame others for your fate, event if they deserve the blame.
Never exhbit self pity.
Do not complain.
The only article that randomness has no control over is your behaviour.
Good Luck!